Telekom Malaysia - Supported by Tax Credit

Date: 
2023-11-24
Firm: 
PUBLIC BANK
Stock: 
Price Target: 
6.20
Price Call: 
BUY
Last Price: 
5.90
Upside/Downside: 
+0.30 (5.08%)

Telekom Malaysia’s (TM) 3QFY23 net profit surged 103% YoY to RM538.2m mainly due to lower interest cost and the utilisation of previously unrecognised tax losses. Group revenue dropped by 2.6% YoY as the increase in internet revenue was offset by lower voice, data and other revenue. Operating profit was down 4.8% YoY due to one-off impairment losses. At the operating profit level, cumulative 9MFY23 normalised number was within our expectation but beat consensus forecast at 79% and 86% of full-year estimates respectively. TM remains our top pick in the telco space, owing to its leading position as the country’s preferred network infrastructure provider. Maintain Outperform with an unchanged TP of RM6.20.

  • 3QFY23 revenue fell by 2.6% YoY. TM One posted a 17% decline in revenue to RM712.5m due to price reduction of large government contracts as well as deferred customer projects. However, this was mititgated by a 5% increase in TM Global’s revenue to RM808.6m due to higher domestic and international data usage. In addition, unifi’s revenue increased marginally by 0.7% to RM1,410.2m on higher subscriber base, which added 7.1% YoY. Meanwhile, unifi ARPU was lower at RM131 versus RM137 in 3QFY22.
  • 3QFY23 net profit jumped 103% YoY, mainly due to lower interest cost and the recognition of tax credit from unutilised losses, which resulted in a credit of RM37.2m compared to a tax cost of RM195.5m in 3QFY22. Meanwhile, operating profit was down 4.8% YoY, led by a one-off impairment of RM21.3m while total cost improved by 2.7% on the back of lower direct cost (-20.8% YoY).
  • Outlook. Generally, the reduction in wholesale rates would have negative impact on TM’s earnings given that it is the main network provider in the country. However, the actual impact will be dependent on its agreements with the respective telecommunication companies that are leasing the infrastructure from TM and these agreements are based on commercial contracts that may differ from the MSAP level. In our opinion, TM could post lower profit in the early stage of implementation but earnings could recover due to various cost optimisation measures in place. In addition, we expect the growing demand for data centres as well as the offering of more value-added services would minimise the impact of lower wholesale prices.

Source: PublicInvest Research - 24 Nov 2023

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