Off to a strong start in 1Q22
? 1Q22 results were in line; core EPS was up 3.3% yoy (ex-VSS: +19%).
? Decent revenue growth and good execution on cost-saving initiatives.
? Reiterate Add on TM (our top Malaysian telco pick). DCF-based TP cut 10%
to RM6.75 due to higher risk-free rate.
Strong 1Q22 results; on track to meet/exceed our FY22F forecast
1Q22 EBITDA rose 2.0% yoy on higher revenue, partly offset by lower margin due to
lumpy voluntary separation scheme (VSS) cost. Despite higher effective tax rate
(Makmur Tax) and depreciation, core EPS grew 3.3% yoy, boosted by lower interest cost
(after early redemption of sukuk in Mar 21). Qoq, EBITDA/core net profit eased
9.3%/0.7% due to weaker seasonality, VSS cost and Makmur Tax. Ex-VSS, core net
profit rose 19% yoy and 23% qoq. 1Q22 core net profit of RM342m slightly exceeded our
estimated range of RM325m-335m. At 29% of our FY22F forecast (31% of Bloomberg
consensus), we deem this largely in line as it is still early in the year and opex/effective
tax rate may be higher in 2Q-4Q22F. Nonetheless, this is a strong set of results that puts
TM well on track to meet, if not exceed, our FY22F estimate.
Decent revenue growth led by Internet, voice & domestic wholesale
Total revenue was in line, up 2.9% yoy, led by Internet (+10.6%), voice (+5.0%) and
domestic wholesale (+14.7%), partly offset by lower Indefeasible Right of Use (IRU) sales
(lumpy bookings in 1Q21) and still soft customer projects. Qoq, it was down 8.3% due to
weaker seasonality, though Internet revenue continued to grow 2.6%. Unifi net adds
softened further qoq to 134k (3Q21/4Q21: +208k/+154k) on slower fibre rollout and
workers’ return to offices, though this is still robust vs. pre-pandemic levels (1Q-4Q19:
16k-71k) and our estimated c.100k. Unifi’s ARPU also expectedly slid 3.5% qoq (-5.6%
yoy) on weaker seasonality and take-up of lower-priced plans by new subs.
Executing VSS as planned & greater direct cost efficiencies
Despite incurring VSS cost of RM105m (1Q21: RM30m, 4Q21: nil), EBITDA margin was
just 0.4% pt lower yoy and qoq, buffered by greater direct cost efficiencies. The bigger
VSS cost is due to TM completing its annual exercise earlier this year in Mar. Ex-VSS,
margin would have risen 3.2% pts qoq (+2.2% pts yoy) to 43.4%, its highest level ever.
Reiterate Add with lower DCF-based TP of RM6.75 (WACC: 7.9%)
We trimmed FY22-24F EBITDA by 1.0-1.2% and core EPS by 0.8-5.5% after updating for
data points from TM’s FY21 annual report. We also cut our TP by 10% after baking in a
higher risk-free rate of 4.5% (previous: 3.5%; amid the recent rise in government bond
yields), partly offset by a rollover of the DCF base year. TM remains our top Malaysian
telco pick due to its healthy 12.1% FY21-24F core EPS CAGR, which is a key re-rating
catalyst. Its FY22F EV/OpFCF of 7.9x is 37% below mobile players’ average, with decent
FY22-24F yields of 4.0-5.9% p.a. Downside risks: adverse regulatory developments.