Review

• TM’s FY23 core profit of RM2,094mn came in above expectations, accounting for 108.0% and 123.7% of ours and consensus’ full-year estimates. The positive variance was largely attributed to lower-thanexpected taxes owing to the recognition of tax credits from the utilisation of previously unrecognised tax losses. Core profit excludes the impairment of IT infrastructure assets (RM152.0mn), accelerated depreciation of network assets (RM197.0mn) and other exceptional items.

• TM declared a 2nd interim dividend of 10.5sen/share and a final dividend of 5.0sen/share, bringing the YTD dividend to 25.0sen/share. (FY22: 16.5sen)

• YoY, FY23 core profit surged 47.8% to RM2,094.0mn while revenue was 1.1% higher at RM12,256.0mn. The stronger bottom line was largely driven by lower net finance cost and tax credits. Meanwhile, the marginal increase in revenue was attributed to TM Global thanks to the higher international data revenue from managed wavelength and other data services.

• QoQ, 4QFY23 core profit surged 20.2% to RM607.0mn while revenue was 1.7% higher at RM3,129.0mn. The stronger earnings performance was due to higher revenue from other telecommunication related services, internet, and multimedia services as well as tax credits. Meanwhile, fixed broadband subscriber reached another new high of 3,131k (+14k QoQ), thanks to healthy growth from Unifi.

Outlook

• For FY24, management guided that i) revenue should increase by a low single-digit growth rate, ii) EBIT should be around RM2.1 to RM2.2bn, and iii) CAPEX-to-total revenue ratio should be between 14% and 18%.

Impact

• Maintain our FY24 and FY25 earnings forecasts. Meanwhile, we introduce the FY26 earnings forecast of RM1,514mn, representing an earnings growth of 2.9%.

Valuation

• We maintain our Buy recommendation on TM with an unchanged TP of RM6.65 based on DCF valuation with a WACC of 8.5% and long-term growth rate of 1.0%. We continue to like TM for its ambitions to fulfil key connectivity targets under JENDELA, strength to support digital transformation and 5G rollout, as well as its on-going cost optimisation agenda.

Source: TA Research - 26 Feb 2024