Telekom Malaysia Bhd - Earnings Surge Fueled by One-Off Tax Credit
Wed, 26-Feb-2025 07:28 am
by Steven Chong • Apex Research

Counter

TM (4863)

Target Price (RM)

7.400

Recommendation

Buy

Summary

  • TM’s 4QFY24 CNP jumped +45.6% yoy and +16.7% qoq to RM669.2m, bringing FY24 CNP at RM2.0bn, which was above expectations, accounted to 125% of ours and consensus expectations respectively.

  • Conservative outlook for FY25 at i) single digit revenue growth, ii) flattish EBIT and ii) 14%-16% capex/revenue. Key growth drivers in 3QFY25 include: i) upgrading of existing submarine cable and ii) the launching of IPDC and KVDC 

  • Re-iterate our BUY recommendation with a higher target price of RM7.40, based on DCF valuation (WACC of 8.3% with a long-term growth rate of 0.5%).

 

Results above expectations. FY24 CNP at RM2.0bn (+9.9% yoy) came above expectations, accounting to 125% of both ours and consensus forecasted CNP of RM1.6bn. The variance was due to lower-than-expected opex and the recognition of one-off tax credit related to previously unrecognised capital allowances in FY23. That said, we gather that the tax reversal seen in 4QFY24 is non-recurring in nature, hence, earnings should normalise going forward.

 

YoY. 4QFY24 CNP jumped +45.6% yoy to RM669.2m, buoyed by lower D&A costs coupled with a significant one-off tax credit of c.RM370m. Revenue for the quarter added +24.1% yoy to RM58.3m led by higher subscribers and device sales coupled with improving ARPU. During the quarter, ARPU maintained an upward trend, finishing strong as a result of increased adoption of Unifi lifestyle bundle packages.

 

YTD. CNP rose by +9.9% yoy to RM2.0bn backed by lower operating expenses and tax credits. Meanwhile, revenue remained nearly flat, down -0.2% yoy to RM11.7bn, reflecting subdued performance across all segments. Notably, Unifi experienced a decline in ARPU in 1H24, as the Group launched an aggressive campaign to attract new subscribers at lower entry-level prices amid intense market competition.

 

Outlook.  Conservative outlook for FY25 at i) single digit revenue growth, ii) flattish EBIT and ii) 14%-16% capex/revenue. The Group plans to upgrade its existing submarine cable in 3QFY25, which is expected to lead to a significant capacity expansion, driving strong revenue growth in FY25. Furthermore, new cables including ALC and SeaMeWe 6 are scheduled for completion in FY26. On the data centre space, both KVDC and IPDC are expected to commence operations in 3QFY25, and Nxera’s data centre is targeted for completion in FY26. 

 

Earnings Revision. We raised our earnings forecast for FY25/FY26 by 3.2%/3.1% respectively, after reducing our operating expense assumptions in line with the latest EBIT guidance. Declared a second interim dividend of 12.5 sen and a special dividend of 6 sen, bringing total dividend for FY24 at 31 sen. This represents a dividend yield of 4.6% at current share price of RM6.70. 

 

Valuation. Re-iterate our BUY recommendation on TM with a higher target price of RM7.40 (previously RM7.20), based on DCF valuation (WACC of 8.3% with a long-term growth rate of 0.5%).

 

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

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