Review

• TM’s 1QFY24 core profit of RM425mn came in within expectations, accounting for 21.6% and 26.4% of ours and consensus’ full-year estimates.

• YoY, 1QFY24’s revenue and normalised EBITDA increased 1.8% and 4.6% to RM2,837mn and RM1,189mn respectively. The higher revenue was mainly contributed by TM Global (+12.1% YoY) due to higher demand for domestic and international data. TM Global’s revenue growth more than offset the weakness from Unifi (-2.7% YoY) as a result of the decline in voice and mobile services, as well as TM One (-0.8% YoY), which was impacted by price reductions of large service contracts.

• Meanwhile, the higher normalised EBITDA was mainly attributed to lower operating costs due to lower network maintenance costs, professional fees, and rental costs. Nevertheless, the core profit fell 2.1% YoY to RM425mn due to higher tax expenses.

• QoQ, 1QFY24’s revenue fell 9.3% to RM2,837mn due to lower contributions from all the business segments. As a result, core profit dropped 30.1% to RM425.0mn. Meanwhile, the Unifi segment continued its fixed broadband subscriber acquisition trajectory with net adds of 4k QoQ to a new high of 3,135k.

Outlook

• For FY24, management maintains the guidance 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 to FY26 earnings forecasts.

Valuation

• No change to our target price of RM6.65, based on DCF valuation with a WACC of 8.5% and LT growth rate of 1.0%. Downgrade the stock from Buy to Hold due to limited potential upside following the price rally.

Source: TA Research - 31 May 2024