High demand for Internet services a boon for TM

Company likely to post up to 12% rise in core net profit

“The Malaysian Communications and Multimedia Commission has reported that 242,000 new fibre premises were passed in 3Q22, above the target by 64% while TM surpassed its own target by 156%.” CGS-CIMB Research

PETALING JAYA: With the growing demand for Internet services, Telekom Malaysia Bhd (TM) is likely to report an 8% to 12% rise in core net profit for its third quarter financial year (FY) 2022 results.

Internet revenue is expected to grow by a healthy 8% to 10% year-on-year (y-o-y) and 1% to 3% quarter-on-quarter (q-o-q).

However, its unifi net additions may have eased q-o-q but above 100,000 for the eighth quarter in a row (1Q22/2Q22: 134,000/125,000), said CGS-CIMB Research.

This is driven by structural demand as household fibre penetration is about 40% as at end-2q22; Lower churn rates and fibre network coverage rollout are also among the factors, it said.

CGS-CIMB Research said core net profit may rise 8% to 12% y-o-y to Rm330milrm340mil, on higher revenue (up 9% to 12% y-o-y) and earnings before interest, taxes, depreciation and amortisation (ebitda) margin.

This is despite a higher effective tax rate or cukai makmur. It said q-o-q, core net profit may be down 15% to 17% due to high base effects and seasonally higher operating expenditure (opex).

The nine months 2022 core earnings per share could form 83% to 84% of its FY22 forecast (85% to 86% of consensus). If so, this would track 5% to 10% ahead of its and consensus’ full-year forecasts.

“The Malaysian Communications and Multimedia Commission reported that 242,000 new fibre premises were passed in 3Q22, above the target by 64% while TM surpassed its own target by 156%,” said the research house.

CGS-CIMB Research estimated the unifi average revenue per user (ARPU) to ease about 2% q-o-q. This is diluted by the lower ARPU of new subs from secondary towns.

It expects 3Q22 data services revenue of about 28% in total, jumping by 22% to 24% y-o-y on continued growth of the domestic wholesale business (fibre leasing), higher indefeasible right of use sales and TM One sustaining its y-o-y growth momentum after growth resumed in 2Q22.

CGS-CIMB Research said the 3Q22 ebitda may have grown 12% to 16% y-o-y, with margin up one to two percentage points y-o-y to 38% to 39%.

On a q-o-q basis, ebitda may be down 5% to 9% due to seasonally higher cost, with margin easing two to three oercentage points.

CGS-CIMB Research said besides higher revenue, the 3Q22 staff cost is likely to be lower y-o-y due to lower headcount and minimal voluntary separation scheme cost.

It said other opex may also be well contained.

The research house made no changes to its earnings forecasts pending TM’S 3Q22 results on Nov 22.

The key re-rating catalyst cited is a healthy 30.8% FY21 to FY24 core earnings per share compounded annual growth rate.

It has an “add’’ call with a target price of RM7.30. The risks cited are adverse regulatory developments.