TM to post strong 1Q on cost optimisation

The telco is expected to gather momentum given it has been selected to be the govt’s only domestic cloud service provider


TELEKOM Malaysia Bhd’s (TM) cost optimisation initiatives and lumpy sale of indefeasible rights of use of wholesale submarine connectivity is likely to boost the groups’ first-quarter (1Q) results.

AmInvestment Bank Bhd (AmInvest) analyst Alex Goh said the telecommunications company’s (telco) 1Q results, which is expected to be announced on May 27, could show a strong base for the rest of the year.

In the research note yesterday, Goh said TM’s public sector business solutions arm, TM One, is expected to gather momentum given TM has been selected to be the government’s only domestic cloud service provider together with international operators Microsoft Corp, Google LLC and Inc.

“TM One accounted for 34% of the group’s financial year ending 2021 (FY21) revenue, while the cloud services are indicatively valued at RM12 billion to RM15 billion over the next five years,” he said.

Recall in the Cloud First strategy under the MyDigital blueprint, the government aims to migrate 80% of public data to the hybrid cloud system by the end of 2022, Goh wrote.

Given that TM’s data centre utilisation is currently at 50%, the company will be cautious in driving capacity expansion over the near term.

“TM could leverage its fixed play dominance provided by its national fibre-optic network and extensive partnerships to support third-party data centre providers, thus alleviating high capital expenditure requirements on its own,” he said.

Goh added that the proposed merger of Celcom Axiata Bhd-DiGi. Com Bhd is unlikely to substantively affect TM’s earnings given that Unifi Mobile does not significantly contribute to the group’s revenue at this stage.

“Although TM does not provide any subscriber details, we understand Unifi Mobile was slightly Ebit positive for FY20 and will continue to fare well for 1Q this year,” he said.

Goh added that notwithstanding the 20-year fibre collaboration arrangement between Celcom, Digi and Maxis Bhd, the likelihood of telcos bypassing TM to offer fibre-to-home services directly is currently uncertain given the government’s efforts to minimise duplication of resources for 5G deployment.

He said TM continues to support the government’s MyDigital via its extensive fibre connectivity under the high-speed broadband and suburban broadband networks.

The government plans to invest RM15 billion over 10 years via special purpose vehicle Digital Nasional Bhd, which will be the owner and wholesaler of 5G infrastructure, spectrum and connectivity.

In lieu of that, AmInvest maintained its ‘Buy’ call on TM with an unchanged fair value of RM7.10 per share based on a terminal growth rate of 2%.

“The stock currently trades at an unjustified FY21 forecast enterprise value/Ebitda of six times versus 12 times for both Maxis and Time dotCom Bhd, given its improving cost structure underpinned by a national dominance in fibre networks which provides multiple avenues for above-peer growth in residential, retail, enterprise and wholesale segments. It also offers a fair dividend yield of 3%,” he noted.

TM closed at RM5.70 yesterday.