Telekom Malaysia Berhad - Within expectations
Tue, 27-Aug-2024 07:56 am
by Steven Chong • Apex Research

Counter

TM (4863)

Target Price (RM)

7.21

Recommendation

Hold

Summary

Telekom reported 2QFY24 core net profit of RM397.8m (+0.1% qoq, -26.5% yoy) and 1HFY24 core net profit of RM795.1m (-8.4% yoy), which was in-line with ours and consensus’ expectations, accounting for 50% of both forecasts respectively.

Kept our earnings forecast unchanged for FY24 but revised our FY25-FY26 earnings by +2.7%/+2.5%, incorporating the earlier-than-anticipated earnings contribution from the data center.

Re-iterate our HOLD recommendation with a higher target price of RM7.21 based on DCF valuation (WACC of 8.3% with a long-term growth rate of 0.5%).

 

Results Review

  • Results review. 2QFY24 core net profit stands at RM397.8m, fell -26.5% yoy but flat qoq. The tepid yoy performance stemmed from higher manpower cost (+22.8% yoy) due to salary adjustment as well as increase in provision for labour settlement. Similarly, revenue declined by -1.7% yoy (+2.5% qoq) attributed to lackluster performance across all TM’s business division.

  • Results within expectations. 1HFY24 CNP of RM795.1m came within expectations, making up to 50% of both our and consensus expectations.

  • Operations Highlights. During the quarter, Unifi revenue growth momentum halted (-1.6% yoy) after ARPU slipped to RM128 (vs RM130 in 2Q23) due to fierce competition. The pressure in ARPU is expected to stabilise in the upcoming months following the introduction of its own bundle campaign, UniVerse, UNI5G Wow, and UNI5G 39. TM One revenue grew +4.9% yoy in 2Q24 due to one-off settlement with MYTV (c.RM37m-RM74m). Meanwhile, TM Global’s revenue dropped -8.6% yoy led by slowdown in international voice traffic.

  • Industry Highlights. While TM is no longer a potential shareholder of DNB following the termination of the SSA, the Group remains committed to support the 5G ecosystem. The SSA termination will not impact its current 5G offerings to the customers, as the ongoing 5G access agreement with DNB remains valid for next 10 years. In regards to the JV with Nxera to construct a data center, the agreement is expected to be finalised in 4QFY24, with potential earnings contributions in the following year. 

  • Outlook. Moving forward, we foresee manpower cost to accelerate in 3QFY24 driven by another round of salary adjustment. Nevertheless, the Group is maintaining its full-year guidance for EBIT at RM2.1bn-RM2.2bn, as the impact of the salary increments has already been factored into projections.

  • Valuation. We re-iterate our HOLD recommendation with a higher target price of RM7.21 based on DCF valuation (WACC of 8.3% with a long-term growth rate of 0.5%). We kept our earnings forecast for FY24 unchanged but revised our FY25-FY26 earnings by +2.7%/+2.5% due to the earlier-than-anticipated earnings contribution from the data center. 

  • Risk. Price slashing by competitors. Changes in government regulations. Higher-than-expected 5G capex affecting cashflow and dividend.

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