TM’s FY22 results disappointed on higher depreciation charge. On the flipside, its internet customers, both home and business, continued to grow and likely to improve further on lower broadband prices. We cut our FY23F earnings by 15%, TP marginally to RM7.75 (from RM7.85) but maintain our OUTPERFORM call.

FY22 PATAMI missed our forecast and consensus estimate by 21% and 12%, respectively. The variance against our forecasts came largely from higher tax charges and depreciation expenses in the fourth quarter. DPS of 16.5 sen came in below our expectation of 21.0 sen.

Results’ highlight. FY22 revenue improved 5% YoY, underpinned by strong performance from internet (+8%) and data (+7%) with voice moderating (+1%). Earnings before interest and tax saw a 22% growth driven by manpower and cost optimisation. Core net profit ended 28% higher on account of lower funding costs mitigated by a higher effective tax rate (33%) due to Cukai Makmur. QoQ, revenue fell 6% but earnings before interest and tax fell 63% on account of higher depreciation costs. PATAMI ended 40% lower on lower effective tax rate (25%).

Its internet customers continued to show solid growth (+4% YoY) with Home and SME segments up by 3% and 5%, respectively. Fixed broadband customers growth remained solid at 13% YoY and 2% QoQ. Blended ARPU however declined by RM8 YoY but remained stable QoQ, at RM131.

Forecasts. We cut our FY23F earnings by 15% on account of higher depreciation charge and operational costs and introduce our FY24F numbers.

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 business sector, (iii) competitive offering with added 5G availability, and iv) subscribers base expected to improve further given the expected lower broadband prices coming from the revised MSAP. Maintained at OUTPERFROM.

Correspondingly, we lower our TP marginally to RM7.75 (from RM7.85) on a 7x FY23F EV/EBITDA (in line with the average historical forward EV/EBITDA of the broadband sector). There is no adjustment to TP based on ESG given a 3-star rating as appraised by us (see Page 4).

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 - 1 Mar 2023