TM’s 4QFY21 CNP of RM291m brought FY21 CNP to RM1.18b, above our expectation at 108% of our estimates but FY21 DPS of 13.0 sen fell short of our 16.0 sen estimate. Unifi subs’ QoQ growth has started slowing down to 7% (vs. 10% in previous quarters), but unifi revenue continued to grow nonetheless. Looking ahead, we expect sustained growth across all three business segments in FY22. Post results, we raised FY22E CNP by 2% and introduce FY23E CNP of RM1.33b, implying 14% growth. Maintain OUTPERFORM and unchanged DCF-TP of RM7.00.

FY21 above estimates. 4QFY21 core net profit (CNP) of RM291m brought FY21 CNP to RM1.18b, surpassing our expectation at 108% of estimates, but within street’s forecast at 105%. From the RM128.6m (4QFY21) and RM1.02b (FY21) normalized PATAMI that TM has reported, we have added back one off-cost such as: (i) provision of RM122m for the impairment of mobile operations assets, and (ii) flood-related expenses of RM40m. The deviation in estimates was mainly due to lower-than-expected costs, as revenue projections were inline. 4QFY21 DPS of 6.0 sen brought FY21 DPS to 13.0 sen, below our 16.0 sen estimate, but within TM’s payout policy of 40~60% of PATAMI at 55%.

YoY, CNP rose 19% on higher revenue (+6%) and continued cost control. All its products saw revenue growth. Unifi and wholesale grew by 10% and 15%, respectively, while TM ONE revenue fell by 4%, as some customer projects in FY20 were not recurring. Cost-wise, the Group continued to make progress in its cost-efficiency measures.

QoQ, despite the 12% increase in revenue, CNP fell 5% due to: (i) 10% increase in opex, and (ii) application of Cukai Makmur tax on TM’s deferred tax liabilities, which amounted to RM20m.

Outlook. As the work-from-home trend starts to fade, we expect TM’s Unifi subs growth to gradually slowdown in coming quarters to 5-7% QoQ (vs. 10% QoQ as in previous quarters). But nevertheless, we should continue to see unifi revenue growth as unifi continues tapping into the mass market. With a gradual recovery in enterprise spending, TM ONE could start to see growth after 5 consecutive years of declining revenues. We expect more IRU deals with OTTs to fuel TM’s wholesale growth.

Met FY21 guidance, new FY22 guidance issued. TM’s FY21 revenue growth of 6% met its guidance of low-to-mid single-digit growth. EBIT of RM1.7b was also within its guided RM1.7b-RM1.8b, and capex of 15% was within its 14%-18% guidance. For FY22, revenue and capex guidance remain the same, but management is guiding EBIT of more than RM1.8b, likely driven by continued revenue growth, but this was not guided as of now.

Post results, we tweak our FY22E CNP by +2%. Our FY22E EBIT of RM1.82b aligns with guidance. We introduce FY23E CNP of RM1.33b, implying 14% growth, on continued growth and normalization of ETR. We lower our FY22E DPS from 18.0 sen to 17.0 sen, on 55% payout ratio.

Maintain OUTPERFORM with unchanged DCF-TP of RM7.00, as the earnings adjustment has an immaterial impact on our 10-year DCF valuation. 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.

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 - 28 Feb 2022