‘TM will be less impacted by ‘Prosperity Tax’ in FY22’

KUALA LUMPUR: Fixed-line player Telekom Malaysia Bhd (TM) will be less impacted by the proposed Cukai Makmur (Prosperity Tax) under Budget 2022 compared to other mobile players, Maybank Kim Eng Research said.

The research house, in a note, said this was due to earnings by TM were more distributed across multiple operating entities with more than 20 entities across four operating segments.

“The earnings impact to companies is not clearcut since taxes are levied on individual operating entities. Companies with low earnings, complex corporate structures and significant overseas exposure should theoretically be less impacted.

“Thus, the underperformance of fixedline stocks relative to mobile stocks in the past week appears unjustified in our view,” it said.

Budget 2022 has proposed for chargeable income for financial year 2022 (FY22) beyond the first RM100 million to be subjected to 33 per cent income tax rate.

“We estimate a potential FY22 impact of 6.0 per cent for TM,” it added.

The research bank reiterates its ‘buy’ call for TM with a target price of RM7.40 per share as the recent share price weakness is being unjustified.

“Risk-reward has become more compelling in our view, with TM being a beneficiary of both the work-from-home and 5G-deployment themes,” it added.

Meanwhile, Maybank Kim Eng noted that there are several risk factors for its earnings estimates, price target, and rating for TM.

“Competitive developments, such as price wars would adversely affect monetisation and thus profitability, as well as regulatory developments pertaining to taxation or product pricing also pose a risk to earnings,” it said.