TM’s bull run looks to continue


TELEKOM Malaysia Bhd’s (TM) stellar bull run since the start of the Movement Control Order in March last year could carry on amid expectations of higher revenue from its Unifi network as local Internet consumption increases.

The company’s share price has already jumped 110% to a 52-week high of RM6.50 from a low RM3.09, with analyst forecasts showing room for an upside potential.

AmInvestment Bank Bhd (AmInvest) has maintained its ‘Buy’ call on TM with an unchanged discounted cash flow-based fair value of RM7.10 per share, which implies a nearly 12% upside from its last trading price of RM6.35 last Friday.

The research house has kept its forecast for the counter pending TM’s 2020 fourth-quarter (4Q) results announcement scheduled for Feb 24.

AmInvest analyst Alex Goh in a recent note said the stock can be rerated further if the company opts to consolidate with mobile and fibre players. The company also offers a compelling dividend yield of 4% and is environment, social and corporate governance compliant with a four-star rating on the FTSE4GOOD Index.

“We note that the group’s nine months ended Dec 31, 2020 (9MFY20), normalised earnings already account for 80% of FY20F consensus earnings, currently 3% below our forecast. We believe TM’s FY20F earnings could come in above market expectations,” Goh said.

He said TM’s wholesale arm, which accounted for 20% of 9MFY20 group revenue, is being driven by higher international voice alongside domestic and global data which support a slightly higher 9MFY20 earnings before interest and taxes margin of 17% versus the group’s average of 15%.

He added that TM’s wholesale division is leveraging its fixed play dominance provided by its national fibre-optic network and extensive partnerships with regional edge computing nodes, which offers content delivery network gateways for over-the-top providers such as Amazon and Netflix.

TM currently provides connectivity to five nodes in Malaysia, 43 in Asean and 66 globally.

“Even though data centres are becoming increasingly important on the back of escalating data demand requirements, the group expects to moderate its investments via strate- gic ecosystem partnerships with third parties by providing the needed connectivity to its extensive national fibre-optic network,” Goh said.

Additionally, TM does not expect substantive capital expenditure increases to expand its submarine capacity, which is needed to support the wholesale indefeasible rights of use (IRU) to other telecommunication operators.

This stems from the group leveraging its national infrastructure to secure reciprocal arrangements with undersea fibre owners or partners for connectivity in Malaysia and the region.

“Hence, TM management is optimistic that the sale of IRU could be seasonally higher in its upcoming 4Q results,” Goh noted, adding that TM’s FY20 earnings could come in above market expectations.

At close last Friday, TM’s share price ended 2.31% or 15 sen lower at RM6.35, valuing the company at RM23.96 billion.