TM is concerned over a potential slowdown in the commercial segment amidst the uncertain global economic outlook. To mitigate the impact, it is stepping up efforts to strengthen revenue streams from both its Unifi and wholesale segments. We maintain our forecasts, but tweak our TP marginally down to RM7.69 (from RM7.75) on higher capex guidance. Maintain OUTPERFORM.

The key takeaways from TM’s analyst briefing yesterday are as follows:

1. TM is concerned over a slowdown in the commercial segment amidst the uncertain global economic outlook. To mitigate the impact, it is stepping up efforts to strengthen the revenue stream from both its Unifi and wholesale segments. Underpinning the drive will be aggressive sales campaigns, retention programmes and promotions positioning it as the nations’ preferred network infrastructure provider. The expanded backhaul sites will also strengthen its value proposition on convergence, offering greater innovation to both retail business and SMEs. In supporting regional wholesale business, TM has secured a North Asian digital provider and a US-based data processor, making it the preferred service provider for international data services within the ASEAN region.

2. TM guided for uncertain earnings outlook. Apart from macroeconomic headwinds, it faces regulatory risk while the terms of the 5G rollout will only be finalised by Mar 2023. Similarly, the impact of the new MSAP depends on the final commercial terms currently being negotiated with other telco players. The negotiation is likely to be concluded by 1H 2023.

3. Its FY22 capex was at RM2.4b, at 20% of topline (higher than its previous level of 14-18%) focusing on access and support. Delivery of 5G sites under the 10-year leasing agreement with DNB contributed to the high capex in FY22. FY23 capex is also likely to be elevated or at a similar level as in FY22.

Forecasts. We maintain our forecasts which conservatively assumed a moderate revenue growth of 1% for FY23 coming from moderation in broadband prices mitigated by higher subscriber growth due to its competitive pricing.

We tweak our TP marginally down to RM7.69 (from RM7.75) on higher capex guidance by TM as mentioned. Our valuation basis is unchanged at 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 3).

We like TM on account of: (i) positive tailwinds in the digital space as economies normalised, (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.

Risks to our call include: (i) regulatory risk with a more progressive leaning political inclination, (ii) unfavourable terms to mobile network operators with regards to the 5G rollout, and (iii) competition between players turns irrational.

Source: Kenanga Research - 3 Mar 2023