TM in good position to capitalise on digital wave

Company to ride on MyDigital Initiative

“With TM being a beneficiary of both the work from home and 5G-deployment themes, we see room for valuation to expand.” Maybank IB Research

KUALA LUMPUR: Telekom Malaysia Bhd (TM) is in a good position due to its projected revenue growth this year and as beneficiary of the Mydigital initiative, according to analysts.

UOB Kay Hian noted that TM has provided guidance for a flat to low single-digit revenue growth for 2021 after three consecutive years of revenue decline (2020: -5%, 2019: -3%, 2018: -2%) given better prospects across all its business segments (Unifi, TM ONE and TM Global).

“With cost optimisation seen in the past two years, 2021 earnings before interest and taxes (Ebit) are expected to exceed the Rm1.6bil recorded last year,” it said in a report.

The research house said that TM’S 2020 core net profit of Rm991mil, which declined 1% year-on-year (y-o-y), accounted for 89% and 97% of its and the street’s estimates respectively.

TM had reported Q4’20 core net profit of Rm194.1mil, a 2% increase y-o-y and a 33% decline quarter-on-quarter (q-o-q).

The q-o-q decline reflects a seasonally higher capex (+52% q-o-q) and non-recurring items (such as preventive maintenance and marketing costs) that drove a higher operating expenditure (+19% q-o-q) in Q4’20, it said.

Unifi’s revenue rose 9% y-o-y and 6% q-o-q given a 3% q-o-q increase in Unifi average revenue per user and a higher subscriber base.

“As 2021 guidance has not factored in the opportunities from the government’s recently-announced Mydigital blueprint, management sees potential upside to the current guidance if it materialises.

“TM also expects an acceleration of the fibre/network rollout given the easing of regulatory pressure.

“As TM was appointed the only home-based cloud service provider (CSP) in Malaysia to build and manage a hyper-scale data centre, this provides opportunities for TM Global as massive domestic and international fibre connectivity is required from the other three CSPS,” said UOB Kay Hian.

It kept its “buy” call on TM given its share price weakness with an unchanged target price of RM7.00.

Likewise, Maybank IB Research reiterated its “buy” call on the stock with a higher target price of RM7.40 from RM5.50 previously.

It opined that TM management’s 2021 Ebit guidance was positive, albeit conservative.

“With TM being a beneficiary of both the work from home and 5G-deployment themes, we see room for valuation to expand,” Maybank said.

Meanwhile, Kenanga Research expected TM to benefit from Mydigital in two main ways.

Firstly, TM Wholesale is expected to benefit from leasing its extensive fibre network for the 5G rollout and US tech companies’ usage for data centres.

Secondly, TM One stands to benefit from greater adoption of cloud services and data centre usage.

“As the only home-based CSP, TM has an edge over Google, Microsoft and Amazon in housing cloud data in Malaysia – a crucial requirement to some users of cloud services and data centres,” it said.

Kenanga upgraded its rating on TM to “outperform” from “market perform” previously with an unchanged target price of RM6.85.