TM’s 3QFY21 CNP of RM304m brought 9MFY21 CNP to RM891m, within expectation at 78% of our FY21E CNP. Unifi subs continued its strong QoQ growth at 10%, outweighing the declining ARPUs, and lifting overall Unifi revenue. Looking ahead, we expect continued growth across all three business segments in 4QFY21 and into FY22. Post results, we lowered FY21E PATAMI and raised FY22E PATAMI on early provisioning of the Cukai Makmur tax. Reiterate OUTPERFORM with unchanged DCF-TP of RM7.00.

9MFY21 within estimates. 3QFY21 CNP of RM304m brought 9MFY21 CNP to RM891m, within our/street’s expectation at 78% each. No dividends in 3QFY21, as expected.

YoY, 9MFY21 revenue rose 7% driven by growth across all segments and products. Notably, Unifi revenue rose 10% on continued strong subs growth, and TM Wholesale revenue rose 15% on a lumpy IRU revenue recognition in 1QFY21. On continued cost-saving initiatives, CNP rose 12%, with management guiding more savings to come.

QoQ, 3QFY21 revenue inched up 1%, driven by Unifi and TM Wholesale. On lower manpower, D&A and interest expenses, PBT rose by 18% and CNP rose in tandem by 19%.

Long-term plans for Unifi. While Unifi subs have been growing at a strong 10% QoQ for three consecutive quarters, its ARPU has been declining, as expected. While ARPU is expected to continue trending down as more new subscribers opt for entry-level packages, TM looks to continue pushing its convergence proposition to support ARPU. The convergence proposition is further strengthened by Unifi’s offering of 5G services, as it could leverage on DNB’s 5G SWN, putting Unifi on even grounds with the other 3 MNOs.

Outlook. We expect continued growth across TM’s business segments, with continued demand for home broadband driving Unifi’s growth, resumption of customer projects (after lockdowns) to lift TM One, and continued IRU deals with OTTs to fuel TM Wholesale’s growth.

Guidance revision. As the continued growth across TM’s segments and cost savings are bearing fruits, outperforming management’s previous guidance, management has raised its guidance for FY21 revenue and EBIT. (refer to Figure 1). Management has guided that in 4QFY21, it will make a provision for the Cukai Makmur tax for YA22. While they did not guide on the amount, we are assuming that, in FY21, they will provide for half of the incremental tax. We estimate TM’s incremental Cukai Makmur tax to be RM47m. Thus, TM could incur an additional RM23.4m in tax expense in FY21, and bear the other half in FY22.

Post results, guidance revision, and Cukai Makmur provision, we reduce our FY21E CNP by 5% and raise FY22E CNP by 5%, purely on the early provision of the Cukai Makmur tax. As this is purely an accounting adjustment, it does not change our view of TM’s underlying fundamentals. We maintain the other estimates as we deem our existing estimates in-line with the new guidance of low-to-mid single digit revenue growth (vs. our 4%) and EBIT of RM1.7b~RM1.8b (vs. our RM1.7b).

Maintain OUTPERFORM with unchanged DCF-TP of RM7.00. Our TP implies an EV/FY22 EBITDA of 6.6x, close to +0.5SD of its 5-year mean, which we think is justified given the tailwinds behind TM’s numerous business segments. We think that the correction in its share price is overdone and unjustified, given TM’s consistently strong quarterly results.

Risks to our call include:(i) weaker-than-expected data and internet revenue, (ii) stronger-than-expected OPEX, and (iii) stiffer competition.
 

Source: Kenanga Research - 26 Nov 2021