TM’s 1QFY22 earnings came in within expectations of our/market estimates, underpinned by improvement from both its Unifi segment and Internet products boosted by lower finance costs despite the application of Cukai Makmur. On a QoQ basis, revenue was a dampener as lower services and projects dragged top-line. No change from management’s guidance; thus, we expect sustained growth across all three business segments in FY22. Maintain OUTPERFORM and unchanged DCF-TP of RM7.00.

In line. 1QFY22 PATAMI of RM340m is in line, accounting for 29%/30% of our/market estimates. No dividend declared as expected.

YoY, revenue increased 3% to RM2.89b underpinned by improved performance from the Unifi (+11%) and TM Wholesale (+2%) segments to RM1,377m and RM625m, respectively but offset by lower contribution from TM One which fell 7% to RM794m. In terms of products, Voice and Internet lead the way at +5% and +11% uptick, respectively. EBIT fell 5% coming from higher expenses from its 3-year Transformation Programme and lower forex gains. PBT up by 15% on account of lower finance costs (on account of early redemption of its RM2.0b sukuk coupled with lower forex losses on borrowings. Overall PATAMI saw a slight 3% uptick with ETR at 27% given the application of the Cukai Makmur.

QoQ, revenue fell 8% as all Products and Segments saw weaker performance with the exception of Internet products which saw a 3% uptick. Internet was driven by higher cumulative Unifi and fixed broadband users. The sharp fall in other Products namely Data (-11%) and Others (+29%) were attributed to lower IRU deals (DATA) and lower projects & services and higher devices from the preceding quarter. Operational efficiency saw EBIT surging 88%. PATAMI ended >100% given the lower finance costs despite Cukai Makmur charge.

Outlook. We are positive on Unifi subs’ continued resilience (+5% QoQ, +35% YoY) as we had expected it to show slowdown as the work-from-home trend starts to fade. Nevertheless, Unifi revenue should still grow by 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 revenue. We expect more IRU deals with OTTs to fuel TM’s wholesale growth. No change in management’s guidance for FY22 such as; (i) revenue growth at low to mid-single digit growth, (ii) EBIT at >RM1.8b, and (iii) Capex/Revenue between 14-18%.

Post results, we made no changes to our FY22E earnings as results came in line with management’s guidance and matched our expectation.

Maintain OUTPERFORM with unchanged DCF-TP of RM7.00. Our TP implies an EV/FY22 EBITDA of 6.6x, close to +0.5SD to 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 - 26 May 2022