TM’s 9MFY22 results beat our expectations. It revised its guidance for FY22 topline growth to mid-to-high-single-digit (from low-to-mid-single digit) on the back of positive momentum from the reopening of the economy. We raise our FY22-23F net profit forecasts by 24-9%, lift our TP by 4% to RM8.30 (from RM7.95) and maintain our OUTPERFORM call.

Results met consensus estimate but above ours. 9MFY22 PATAMI beat our expectation at 84% of our full-year forecast but met market expectation at 79% of the full-year consensus estimate. The positive variance from our forecast came largely from a lower-than-expected operating expenses. No DPS was declared for the quarter.

Results’ highlight. YoY, 9MFY22 revenue improved 9% underpinned by strong performance from internet (+9%) and data (+14%) with voice moderating at 3%. Earnings before interest and tax saw a 32% growth driven by manpower and cost optimisation. Core net profit ended 10% higher on account of a higher effective tax rate (33%) due to the implementation of Cukai Makmur. QoQ, revenue moderated 2% but earnings before interest and tax fell 13% on account of higher operating and depreciation costs. PATAMI ended 30% lower on higher effective tax rate (42%).

Its internet customers continued to show solid growth (+4% YoY) with Home and SME segments up by 3% YoY and 5% YoY, respectively. Fixed broadband customers growth remained solid at 17% YoY and 2% QoQ. Blended ARPU however saw RM1 YoY and RM4 QoQ decline to RM131 as competition increased.

Solid top-line ahead. We expect robust topline to extend into 2023 as economic activities continue to normalise. Its Unifi revenue should still be sustainable by tapping into the mass market as its nationwide network expansion is complete and on further coverage of 4G. The reopening of the economy is boosting its B2B revenue as corporates, SMEs and the government sector continue to upgrade their digitalization. The 5G deployment is expected to further boost its sales ahead being the nation’s preferred network infrastructure provider. The proposed revision under MSAP will likely reduce wholesale prices in FY23 but mitigate by higher demand due to the 5G deployment and attractive bundling. TM revised up its guidance for: (i) its FY22 top line growth to mid-to-high-single-digit (from low-to-mid-single-digit), and (ii) a FY22 EBIT of more than RM2.3b (from RM1.8b).

Post results, we raised FY22F earnings by 24% on account of: (i) revenue growth of 8% (from 4% previously), and (ii) operating expense margin at 60% (from 63% previously). FY23F earnings are raised by 9% on these assumptions; (i) revenue growth of 3% (from 4%), (ii) operating expense margin at 60% (from 63% previously), and iii) earnings before interest and tax margin at 16% (from 19% previously) on account of 5G leasing charges.

We like TM on account of: (i) positive tailwinds on the digital space as economies reopen, (ii) the enhanced network coverage nationwide boosting internet demand from both the public and businesses, and (iii) competitive offering with the added 5G availability. Reiterate OUTPERFORM.

Source: Kenanga Research - 23 Nov 2022