Review

• TM’s 1HFY24 core profit of RM821mn came in within expectations, accounting for 46.1% and 51.1% of ours and consensus’ full-year estimates.

• The group declared a 1st interim dividend of 12.5sen. (1HFY23: 9.5sen)

• YoY, 1HFY24’s normalised EBITDA increased 2.6% to RM2,340mn, while revenue stayed flat at RM5,745mn. The higher EBITDA was mainly driven by better operational efficiency and effective cost management. Meanwhile, although TM One and TM Global registered higher revenue of RM1,414mn (+2.1% YoY) and RM1,494mn (+0.6% YoY), respectively, it was offset by the weakness from Unifi (-2.2% YoY) due to promotional discounts and lower voice and mobile services. With the absence of tax credit, core profit dropped 16.4% to RM821mn.

• QoQ, 2QFY24’s revenue grew 2.5% to RM2,908mn due to higher contributions from data, other telecommunication and nontelecommunication related services. Nevertheless, due to higher workforce and operational costs, the group saw its normalised EBITDA and core profit drop 3.2% and 6.7% to RM1,151mn and RM396mn, respectively.

• On the other hand, although the Unifi segment continued its fixed broadband subscriber acquisition trajectory with net adds of 8k QoQ to a new high of 3,143k, it suffered from ARPU dilution (-1.5% QoQ to RM128) due to intense competition.

Outlook

• Management’s guidance for FY24 was largely unchanged, with revenue should increase by a low single-digit growth rate, and EBIT should be around RM2.1 to RM2.2bn.

• The group intends to allocate more CAPEX to developing new submarine cable systems and expanding data centres.

• Management guided that TM could still offer 5G to its customers despite the termination of the share subscription agreement with Digital National Bhd (DNB). Meanwhile, management also revealed that the 5G access agreement with DNB shall be valid for 10 years.

Impact

• Maintain our FY24 to FY26 earnings forecasts.

Valuation

• After incorporating a 4-star ESG premium based on our latest internal guidelines, we revised the target price from RM7.70 to RM7.93. We value the stock based on DCF valuation with a WACC of 8.5% and a LT growth rate of 2.0%. Maintain a Buy call on the stock.

Source: TA Research - 27 Aug 2024