Telekom Malaysia Bhd - Modest Results, Optimistic Outlook Ahead
Thu, 29-May-2025 07:10 am
by Steven Chong • Apex Research

Counter

TM (4863)

Target Price (RM)

7.400

Recommendation

Buy

  • TM’s 1QFY25 CNP rose +4.4% yoy and -38.0% qoq to RM414.6m, which was within expectations, representing 23.0%/24.2% of ours and consensus expectations respectively.

  • Despite lagging behind EBIT guidance and ongoing ARPU pressure, TM remains committed to its Unifi-driven bundling strategy and expects revenue from the U Mobile contract to support topline resilience and offset near-term earnings shortfall.

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

 

Results within expectations. 1QFY25 CNP at RM414.6m came within expectations, accounting for 23.0%/24.2% of both ours and consensus forecasted CNP. Our CNP was derived after stripping out one-off adjustments of +RM13.4m (inventory write-off: RM5.5m, forex: RM7.8m and others: RM0.1m).

 

YoY. 1QFY24 CNP saw a modest increase of +4.4 yoy, supported by lower borrowing costs and tax charges, which helped cushion the impact of higher 5G access fees and IT system upgrade expenses. Revenue remained relatively flat, edging up +0.5% yoy to RM2.9bn, mainly driven by the C2C segment (TM Global) on the back of stronger demand for international and domestic data as well as data centre services. However, the B2C segment (Unifi) saw revenue decline amid a competitive market environment, where TM had to lower prices to defend its market share. The B2B (TM One) also lagged behind impacted by technology migration and delays in deployment of customer projects.

 

QoQ. CNP dropped by -38.0% qoq dragged by weakness across all business segments. Similarly, revenue dropped -6.5% qoq. Notably, Unifi experienced a decline in ARPU from RM134 to RM127, as the Group rolled out aggressive campaigns to attract subscribers. Concurrently, both the B2B and B2C segments were impacted by seasonally lower project deliveries. 

 

Outlook.  Despite the downtrend in ARPU, TM remains focused on its strategic push for content bundling and service convergence under the Unifi brand, aiming to offer integrated broadband, mobile, and OTT solutions to boost customer stickiness and long-term ARPU. While the impact may take time, this strategy is expected to help offset pricing pressure and support topline resilience. In relation to TM's recent contract win from U Mobile, deployment is scheduled to commence by the end of 2QFY25, with implementation expected to extend into the subsequent quarters. The services—similar to those provided to DNB—will include network infrastructure, fibre backhaul, and access connectivity, but with customised specifications tailored to U Mobile’s requirements. Although EBIT declined -3.8% yoy, falling short of the full-year flat growth guidance, management remains confident that the revenue generated from the U Mobile contract will help recoup the lost ground.

 

Earnings Revision. We maintain our forecast, as management guidance remains unchanged and the results are in line with expectations.

 

Valuation. Re-iterate our BUY recommendation on TM with unchanged target price of RM7.40, 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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