CGS-CIMB: TM has healthy underlying trends

Unifi net adds are likely to remain strong and comfortably above 100,000, driven by robust home fibre demand 


TELEKOM Malaysia Bhd’s (TM) core earnings per share for its second quarter ended June 30, 2021 (2Q21F) is forecast to ease quarter-on-quarter (QoQ) on charges related to resource optimisation and following an exceptionally strong 1Q21. 

CGS-CIMB Securities Sdn Bhd analysts Foong Choong Chen and Sherman Lam Hsien Jin estimated that TM’s core net profit (CNP) to fall 25% to 28% QoQ, or down 7% to 10% year-on-year (YoY), to RM240 million to RM250 million. 

Regardless, the analysts expect the telco’s results would remain on track with their financial year 2021 forecast (FY21F). 

“This would bring the first half of 2021 forecast (1H21F) CNP to RM570 million to RM580 million (up 12% to 14% YoY), on track at 49% to 50% of our FY21F, while Bloomberg consensus is around 50% to 51%. 

“We expect 1H21F dividend per share to be kept at 6.8 sen, with the balance 12.3 sen to be declared for 2H21F,” they wrote in a research report last week.

TM is expected to report 2Q21 results this week, likely on Friday. Foong and Lam noted that the telco’s Internet revenue is believed to have risen 2% to 4% QoQ in 2Q21F.

After three record-setting quarter (3Q20 to 1Q21), Unifi net adds are likely to remain strong and comfortably above 100,000, driven by robust home fibre demand due to various movement restrictions across 1H21 and TM’s fibre coverage expansion. 

Average revenue per unit is estimated to eased further by 1% to 2% QoQ due to new subscribers from secondary towns signing up for lower-priced plans. 

“After lumpy indefeasible right of use, sales significantly boosted 1Q21, we estimate data revenue fell QoQ in 2Q21F. 

“YoY, it was likely driven up by continued growth in fibre leasing demand for mobile backhaul and wholesale high-speed broadband access. 

Other revenue was likely softer QoQ as the delivery of customer information and communications technology projects should have been delayed by the movement restrictions, but up YoY as 2Q20 was also affected by the first Movement Control Order,” they said. 

Meanwhile, voice revenue was flat QoQ and YoY.

Foong and Lam noted that TM’s further resource optimisation in 2Q21F, part of its transformation programme, would likely lead to lumpy one-off costs being booked in 2Q21F. 

Nevertheless, the analysts are positive about such initiatives as they help to structurally lower TM’s costs in the future. 

CGS-CIMB reiterated its ‘Add’ call for TM with discounted cash-flow-based target price of RM7, pending the release of its results. 

Its FY22F enterprise value/operating free cashflow multiple of 10.2 times is one standard deviation below its 13-year mean and at a 29% discount to the average for local mobile telcos, with decent FY21-23F yields of 3.2% to 4.4% per annum. 

Foong and Lam stated that the key rerating catalyst is stronger FY21-FY22F earnings. Meanwhile, the downside risk is higher than expected operating expenditure. 

TM shares declined 0.17% to RM5.83 last Friday, valuing the company RM22 billion.