TM to gain from pandemic-driven data consumption


THE Covid-19 pandemic has accelerated data consumption among Telekom Malaysia Bhd’s (TM) users in which it recorded 2.4 times jump in its overall traffic to 8,890 gigabits per second (Gbps) in September 2021 (MCO 3.0 period) from 3,758Gbps in January 2020 (pre-MCO period). 

MIDF Research noted that TM clients’ average data downloaded increased from 238 gigabytes (GB) to 470GB per subscriber. 

“Online applications like video conference, social media, web surfing and video streaming have shown notably high growth. The growth was led by video conferences mainly due to working from home during the lockdowns,” MIDF wrote in a research note on the telecommunication company yesterday. 

MIDF added that TM will roll out fibre connections to 85% of premises in Malaysia by 2025. 

“There will be no duplication in terms of the rollout plan. The group will also provide fixed wireless access to the remaining 15% of premises in remote areas. TM will use its own spectrum or most likely acquire wholesale from other providers,” stated MIDF. 

To support new services such as 5G and a better customer experience that is more data-driven, TM has simplified the network modernisation architecture. 

It also introduced automation and self-healing networks through software-defined networking and network functions virtualisation technology. 

“Among the next-gen infrastructure focus will be the deployment of Telco Cloud sites which will be executed in phases and aimed for 100% readiness by 2025. 

“The management is maintaining its capital expenditure (capex) guidance of 14%-18% of its annual revenue for the financial year-end of 2021 (FYE21) despite lower than expected capex spending in the first half of FY21,” noted MIDF 

MIDF has made no adjustments to its earnings forecast for TM for FY21/22/23F as the briefing yielded no material surprises. 

“We maintain our target price of RM6.91 premised on dividend discount model valuation methodology with weighted average cost of capital (WACC) of 6.7%,” it added. MIDF maintained its ‘Buy’ call on TM as the group poised to benefit from the rise in fibre broadband adoption alongside being the nation’s main fixed-line player.

TM’s stock currently trades at an attractive FY21F enterprise value/Ebitda of six times with a fair dividend yield of 3%.

“We believe the group’s revenue growth, across its main revenue clusters namely Unifi, TM One and TM Wholesale will remain intact,” it further said. 

Separately, AmInvestment Bank Bhd’s research analyst Alex Goh also has maintained ‘Buy’ call on TM with an unchanged discounted cashflow-based fair value of RM7.10 per share based on a WACC of 6.2%, terminal growth rate of 2% and neutral environmental, social and governance rating of three stars. 

According to the analyst, TM’s nationwide network currently deploys over 600,000km of fibre-optic cables and over 246,000km of copper cables. 

“TM has 300 submarine cable systems that cover over 300km, 28 points-of-presence worldwide, 4,500 LTE sites, 13,000 WiFi hotspots and nine data centres (eight in Malaysia and one in Hong Kong),” he noted 

Its unifi service currently serves 2.7 million homes with over 380,000 small and medium enterprises and 12,000 enterprise or public sector offices. 

AmInvestment retained its FY22F–FY23F capex/revenue assumption of 18% as the group expects its prospective capex/revenue ratio to remain within 14%–18% of revenue for this year. 

“We reaffirm our conviction that the upcoming 5G rollout will positively transform the cellular playing field for TM’s quad-play ambitions by levelling the spectrum disparity between operators. 

“Given TM’s critical role in the MyDigital Initiative with its ownership of the high-speed broadband network, we expect a faster pace of growth for its wholesale revenue beyond FY21F,” he wrote. 

He added that TM One’s revenue growth could also accelerate following the group’s appointment as the sole Malaysian cloud provider for government data.