TM: Performance Exceeds Expectations on Cost Efficiencies, Target Price Raised

A recent investment bank research report indicates a strong financial performance, with core profit significantly exceeding market and analyst expectations. This positive variance was primarily driven by lower-than-anticipated tax expenses.

Performance Highlights

The company’s 9MFY25 core profit reached RM1,470 million, surpassing both the firm’s and consensus full-year estimates by 83.7% and 86.4% respectively. This outperformance was largely attributed to a reassessment of deferred tax provisions, leading to substantial tax savings, and lower net finance costs. On a quarterly basis, 3QFY25 core profit saw a remarkable surge of 39.6% to RM623 million, alongside a 4.1% increase in normalised EBITDA quarter-on-quarter. Revenue also increased by 7.9% quarter-on-quarter to RM2,992 million, fueled by higher contributions from data, internet, and other telecommunication services.

Despite the strong profit figures, the company navigated some challenges during the period. Year-on-year, 9MFY25 normalised EBITDA experienced a slight decline of 1.4% to RM3,497 million, primarily due to elevated 5G access costs and increased customer acquisition and retention expenses. Overall revenue also saw a marginal dip of 0.5% to RM8,615 million. Segmental performance revealed mixed trends, with Unifi’s revenue remaining largely stable due to offsetting factors like growth in fixed broadband and bundled services against declines in voice services and intense market competition. TM One’s revenue also decreased by 4.8% due to a prior-year arbitration settlement, though underlying growth was supported by customer projects and digital solutions. Conversely, TM Global recorded a 1.4% revenue increase, bolstered by 5G mobile backhaul and data centre services. The Unifi segment continued its subscriber growth, adding 19,000 net new subscribers quarter-on-quarter, reaching a new high of 3.207 million. Average Revenue Per User (ARPU) for Unifi improved 3.2% quarter-on-quarter to RM130, driven by device campaigns encouraging upgrades to higher-speed packages.

Outlook and Valuation

The company has reiterated its FY25 guidance, projecting service revenue growth at a low single-digit rate and a CAPEX-to-revenue ratio between 14% and 16%. However, reported EBIT may be lower due to a substantial number of voluntary separation applications currently under review, which are expected to yield long-term benefits despite potential near-term impacts. Excluding this effect, core EBIT is forecast to be broadly comparable to FY24 levels.

Following the better-than-expected results and an update to earnings forecasts for FY25, FY26, and FY27 to incorporate lower tax expenses, the investment bank has revised its target price. The target price has been increased from RM8.30 to RM8.45, based on a Discounted Cash Flow (DCF) valuation with an 8.5% Weighted Average Cost of Capital (WACC), a 2.0% long-term growth rate, and a 3% ESG premium. The investment bank maintains its BUY recommendation on the stock.