Telekom Malaysia (TM) posted a 28.7% YoY growth in 1QFY24 net profit to RM424.8m, mainly driven by stronger contribution from TM Global and lower costs, particularly operational and depreciation costs.Results were broadly in line with both our and consensus full-year estimates, accounting for 30% and 26% respectively. The increase in TM Global revenue came from both domestic and international markets while the decline in costs was due to the recognition of accelerated depreciation in 1QFY23 and lower professional fees as well as maintenance expenses in 1QFY24. We tweak our FY24-26F earnings forecasts by c.2% mainly due to housekeeping changes. As we rollover valuation to FY25F, our DCF-based TP is revised up to RM6.40. Maintain Neutral.

• 1QFY24 revenue rose 1.8% YoY, mainly due to higher contribution fromTM Global (+12.1% YoY). The increase in revenue came from bothdomestic and international front as contribution from High SpeedBroadband (HSBB) and backhaul sites for 4G/5G have increased whilethe take-up rate for submarine cables has improved, coupled with thesuccessful provision of managed wavelength for hyperscalers. However,the growth was partly offset by lower contribution from unifi due to a 2.2%decline in ARPU and TM One, as a result of price adjustment made tocertain contract renewals.

• 1QFY24 net profit rose 28.7% YoY. This was in tandem with theincrease in revenue as well as the decline in operating costs.Operationalcost fell 9% YoY due to lower network maintenance and professional feeswhile depreciation and amortisation charges dropped sharply by 19.6%YoY to RM538.3m due to the recognition of accelerated depreciation in1QFY23. Nevertheless, we believe the overall cost is likely to increase inthe coming quarters and the current cost-to-revenue of 78% is notsustainable.

• Outlook. Following the completion of TM’s 3-year transformation phasein 2023, the group is now embarking on a plan to become a DigitalPowerhouse by 2030. In 2024, the group will focus on core connectivitywhile exploring new ventures, including platform and ecosystem,leveraging on cloud platforms and new technologies like artificialintelligence. Some of its aspirations include offering converged solutionsfor consumers and businesses, focusing on managed services with nextgen connectivity as well as expansion of domestic fibre network andinternational wholesale platform with new submarine cables, datacentres, media delivery and edge computing.

Source: PublicInvest Research - 31 May 2024