TM’s 1HFY22 results met expectations. It reiterated its guidance for a low-to-mid single-digit growth on the back of the reopening of the economy. We maintain our forecasts but raise our TP by 15% to RM7.95 (from RM6.90) as we rationalise our valuation basis to EV/EBITDA from DCF. Maintain OUTPERFORM.

Met expectations. 1HFY22 PATAMI came in at 62% and 64% of our and consensus estimates, respectively. However, we deem the results within expectations as historically TM’s 1H is significantly stronger than 2H. An interim DPS of 9.0 sen was declared, on track to meet our full year expectations of 18.0 sen.

Results’ highlight. 1HFY22 revenue improved 7% to RM6.0b underpinned by strong performance from internet (+10% to RM2.2b) and data (+8% to RM1.7b). The revenue was boosted by the strong 2Q (+7%) as the economy reopened. EBITDA saw 15% growth driven by manpower and cost optimisation. PATAMI ended 22% higher despite a higher effective tax rate (29%) due to the implementation of Cukai Makmur.

Not surprisingly Unifi subscribers continue to show solid growth (+29% YoY, +5% QoQ) as TM has completed its nationwide fibre network expansion of 6m premises (under the Jendela Initiative) and is able to target the mass market. ARPU remained stable at RM137 and unlikely to come under pressure given the strong demand.

Outlook. We expect earnings stability to extend into 2H 2022 as economic activities continue to normalise. Unifi revenue should still be sustainable by tapping into the mass market as its nationwide network expansion is complete. The reopening of the economy is boosting its B2B revenue as corporates, SMEs and the government sector continue to upgrade their digitalization. The positive development on the 5G rollout under the Single Wholesale Network (SWN) model is expected to further boost its sales ahead being the nation’s preferred network infrastructure provider. However, we expect earnings to come under pressure in the 2H on higher depreciation costs as capex gains momentum.

Forecasts. Post results, we made no changes to our FY22F earnings with the company maintaining its guidance of: (i) low-to-mid single-digit growth, (ii) EBIT of more than RM1.8b, and (iii) Capex/Revenue of 14% to 18% (1HFY22: 14%)

Reiterate OUTPERFORM with a higher TP. We raise our TP by 15% to RM7.95 (from RM6.90) as we rationalise our valuation basis to 7x FY23F EV/EBITDA (in line with the average historical forward EV/EBITDA of the broadband sector) from DCF basis. There is no adjustment to TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 3).

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

Source: Kenanga Research - 25 Aug 2022