Telekom Malaysia Berhad - Earnings boosted by lower OPEX
Wed, 27-Nov-2024 07:48 am
by Steven Chong • Apex Research

Counter

TM (4863)

Target Price (RM)

7.20

Recommendation

Buy

Summary

  • Telekom reported 3QFY24 CNP of RM573.3m (+0.3% qoq, -1.2% yoy) and 9MFY24 CNP of RM1.4bn (-8.4% yoy), which was above ours and consensus’ expectations, accounting for 85% of both forecasts respectively.

  • Kept our earnings forecast unchanged for FY24 as we expect a dip in earnings in 4QFY24 due to higher depreciation expenses resulting from the increased capital expenditure.

  • We upgrade our recommendation to BUY with unchanged target price of RM7.20 based on DCF valuation (WACC of 8.26% with a long-term growth rate of 0.5%).

     

Results Review

  • Results review. 3QFY24 CNP stood at RM573.3m (+8.8% yoy +44.1% qoq) after excluding foreign exchange losses (RM104.4m) and inventory write-off (RM3.8m). The strong yoy performance stemmed from reduced direct costs associated with voice services, along with a decrease in depreciation due to the absence of a one-time impairment charge in FY23. Revenue recorded at RM2.92bn (-1.2% yoy, +0.3% qoq) stayed mostly flat during the quarter.

     

  • Results above expectations. 9MFY24 CNP of RM1.37bn, makes up to 85% of both our and consensus forecasted CNP, exceeding both of ours and consensus expectations. The variance was mainly due to lower-than-expected depreciation and operating expenses.

     

  • Operations Highlights. During the quarter, Unifi revenue slid (-1.0% yoy) as ARPU was down to RM130 (vs RM131 in 3Q23) due to more promotional discounts. That said, Unifi subscribers has shown promising net adds to 3.1m (+1.6% yoy) following its successful Universe campaign. TM One revenue was up +1.9% yoy thanks to higher recognition of projects, particularly from government and other enterprise customers. Meanwhile, TM Global’s revenue dropped -3.9% yoy as international voice traffic continue to trend downwards.

     

  • Outlook. The Group is currently ahead of its full-year guidance, with an EBIT of RM1.8bn, representing 80% of the targeted amount. Meanwhile, capex may begin to ramp-up in 4QFY24, driven by key projects such as the data center expansion and submarine cable, which are expected to be delivered during the quarter. 

     

  • Valuation. Upgrade our recommendation to BUY (from HOLD) with unchanged target price of RM7.20 based on DCF valuation (WACC of 8.26% with a long-term growth rate of 0.5%). We kept our earnings forecast for FY24 unchanged in anticipation of a dip in earnings in 4QFY24 due to higher depreciation expenses resulting from the increased capital expenditure. 

     

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

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