Investment Highlights

• We maintain BUY on Telekom Malaysia (TM) with an unchanged DCF-based fair value (FV) of RM7.80/share based on WACC of 8.7% and terminal growth rate of 4%. Our FV implies a FY24F PE of 17x, which is slightly below its 5-year mean of 18x. We make no changes to our neutral 3-star ESG rating.

• TM’s 1HFY24 core net profit of RM821mil was within our expectations and consensus. Hence, we make no changes to our FY24F-FY26F earnings.

• TM has declared an interim dividend of 12.5 sen/share for 1HFY24 (1HFY23: 9.5 sen/share). This is in line with our FY24F DPS of 22.0 sen/share.

• TM’s 1HFY24 CNP slid by 9% to RM821mil from RM899mil in 1HFY23 due to a one-off tax credit from the utilisation of unrecognised tax losses which led to a minimal tax rate of 0.8% in 1HFY23.

• TM’s 1HFY24 revenue remained flat at RM5.7bil as revenue growth in TM One (+2% YoY) and TM Global (+1% YoY) was offset by a reduction in Unifi revenue (-2% YoY). TM One’s steady revenue growth was supported by higher customer project delivery and a one-off arbitration settlement with MYTV. Meanwhile, TM Global benefited from nationwide 4G and 5G backhaul site upgrades and global sales of indefeasible rights of use (IRU) capacity.

• Unifi’s revenue slid 2% YoY to RM2.8bil in 1HFY24 due to promotional discounts and lower voice service usage. Nevertheless, Unifi fixed broadband subscribers increased to 3.14mil in 1HFY24 (vs. 3.12mil in 1HFY23) on the back of attractive converged bundling packages.

• On a positive note, cost-to-revenue ratio declined to 79.6% in 1HFY24 from 82.1% in 1HFY24, driven by lower depreciation charges (-12% YoY), opex (-4% YoY) and direct cost (-8% YoY).

• Sequentially, TM’s CNP dipped 7% to RM396mil in 2QFY24 from RM425mil in 1QFY24 due to higher operating costs (+6% QoQ) despite expanded revenue (+3% QoQ).

• TM’s 1HFY24 capex was RM460mil with a capex-to-revenue ratio of 8.8%, below management’s FY24F target of 14%-18%. TM plans to boost spending in 2HFY24 to improve network infrastructure, submarine cables and data centres. For FY24F, TM maintains guidance for a low single-digit percentage revenue growth and EBIT of RM2.1bil-RM2.2bil.

• TM is currently trading at a compelling FY24F PE of 14.5x, below its 5-year historical average of 18x. It offers a decent dividend yield of 4% and double-digit ROE of 18.2%.

Source: AmInvest Research - 27 Aug 2024