TM Saved By Lower Depreciation And Amortisation

Telekom Malaysia Berhad’s (TM) marginal revenue growth has led MIDF research to keep to their NEUTRAL recommendation with a revised target price of RM6.15 (previously RM5.58) pursuant to the release of 1QFY24 results.

1QFY24 financial performance came in within expectations. Only TM Global contributed to the revenue growth while unifi and TM One saw contraction in revenue. Nonetheless, the earnings improved mainly attributable to the lower depreciation and amortisation cost, MIDF Research said today (May 31).

While there has been various initiatives being carried out to improve the revenue, MIDF’s main concern lies on unifi in view of the intense competition. Meanwhile, depreciation and amortisation costs should creep up in the coming quarters premised on higher sequential capex.

TM’s 1QFY24 earnings grew by +28.7%yoy RM424.8m. This was mainly attributable to the decline in depreciation and amortization to RM538.3m (-19.6%yoy).

Meanwhile, 1QFY24 revenue was up marginally by + 1.8%yoy to RM2,837m. This was solely supported by higher contributions from TM Global as both unifi and TM One saw a contraction in revenue.

All in, TM’s financial performance, specifically, total cost to revenue ratio for 1QFY24 stood at 78.0%, down from 83.7% a year ago which was mainly due to lower depreciation and amortization cost (-19.6%).

This was reflective of the accelerated depreciation experienced in the earlier financial year as well as the lower capex for the quarter. Excluding this, other costs were down marginally by -1.2% due to lower operational costs. On the contrary, direct and manpower cost saw a slight increase of +3.0%yoy and 4.8%yoy.

1QFY24 capex shrunk by almost half to RM204m (-49.5%yoy), led by lower capex spend on access (-26.5%yoy) and core (-6.7%yoy).

Premised on this, MIDF’s view is that FY24 capex could come at the lower end of the management guidance of between 14% and 18% of revenue.

Nonetheless, MIDF expects the usual seasonality in capex to remain, whereby quarterly capex will peak in the fourth quarter. Revision of target price.

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