Maintain BUY, with a higher DCF-derived TP of MYR7.55 from MYR7.40, 38% upside and 3.3% FY23F dividend yield. Post the results call, we lift FY22-24F core earnings by 6-8%. Management sees downside risk to enterprise revenue from the economic headwinds but this will likely be offset by robust wholesale and uniFi growth. We see wholesale and internet revenue growing at a FY22-24F CAGR of 9-15% from structural drivers.
UniFi ARPU weakness buffered by bundling efforts. Telekom Malaysia attributed the decline in fiber broadband (FBB) ARPU (-4% QoQ) to new customers taking up entry level plans. It is pushing for the adoption of bundled/converged offerings (mobile, pay-TV, and solutions) to drive higher average revenue per account (ARPA). The number of home and SME customers on converged plans have continued to trend higher with ARPA at MYR117 (home) and MYR257 (SME). Despite the competition from access seekers, TM said subscriber acquisition cost have largely remained steady.
Strong growth in wholesale to sustain. We continue to see wholesale as the fastest growing segment within the group (9M22:+18%). Growth will be supported by: i) The 5G mobile backhaul fiberisation contract with Digital Nasional (DNB) which has an aggressive target to reach 80% 5G population coverage by 2024, and ii) higher take-up of high speed broadband access with the expanded fiber footprint under the JENDELA programme. Greater data center and co-location demands from hyperscalers and digital providers moving to edge computing will also benefit TM’s global wholesale business.
Some headwinds for enterprise. TM highlighted that its enterprise customers are fairly distributed between the private and public sectors with a good mix of recurring revenues. While the economic headwinds could compel corporates to claw back on ICT spending with contract renewals at lower prices, management expects this to be offset by higher wholesale and uniFi revenues. TM continues to invest in capabilities for its digital services arm (Credence) and now has a pool of 162 staff which are subject matter specialists (2Q22: 142).
Forecast raised. We lift FY22-24F core earnings to factor in the latest opex run-rates and progressively stronger enterprise contributions (our previous forecast appears conservative even with economic challenges) post the results call yesterday. TM’s balance sheet is strong with good debt headroom (net debt/EBITDA of 1.1x), supported by operating cashflows of over MYR2bn where c. 23% of its USD debt (35% of overall debt) are hedged.
Key risks are competition, weaker than expected earnings/margin and stronger than expected decline in broadband access prices pursuant to the on- going review of the mandatory standards on access pricing (MSAP).
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....