TA Research said the group intends to allocate more capital expenditure to develop new submarine cable systems and expand into the data centre space.
PETALING JAYA: Telekom Malaysia Bhd
(TM) has kept its guidance for the financial year 2024 (FY24) largely unchanged with revenue likely to increase by a low single-digit growth rate, while earnings before interest and taxes should come in around RM2.1 to RM2.2bil.
In the first half of FY24 (1H24), the telecommunication group reported a core profit of RM821mil, which came in within expectations of analysts.
However, 1H24 revenue was flattish year-on-year as weaker revenue from Unifi offset broad-based expansion across other businesses, including TM Global, which was propelled by higher sales from managed wavelength and domestic data, and TM One, which was underpinned by increased customer projects and a one-off settlement.
At Unifi, its average revenue per user weakened due to promotional discounts and a higher number of new subscribers on entry-level packages, analysts noted.
Post a meeting with analysts, TA Research said the group intends to allocate more capital expenditure (capex) to develop new submarine cable systems and expand into the data centre (DC) space.
Its management guided that TM could still offer 5G to its customers despite the termination of the share subscription agreement with Digital National Bhd (DNB).
“Management also revealed that the 5G access agreement with DNB shall be valid for 10 years,” said TA Research, which upped the stock’s target price (TP) from RM7.70 to RM7.93, keeping its “buy” call.
Meanwhile, Kenanga Research noted that TM sees tremendous earnings opportunities in providing connectivity services for DCs in Johor, including regional DC-to-DC connectivity for hyperscalers.
Moreover, TM is confident that its partnership with an incumbent in Singapore will enhance its ability to deliver these services.
Despite anticipated competition international incumbents, the group remains confident of its growth prospects in this space, added Kenanga Research.
“We maintain our forecasts, a TP of RM7.53 and ‘outperform’ call,” said the research firm.
One concern as highlighted by MIDF Research is the uptick in cost-to-income ratio in the second quarter of this year (2Q24), primarily due to the surge in manpower cost which is now the largest cost component of total cost.
“The total cost to revenue ratio for 2Q24 stood at 81.1%, which was slightly higher as compared to 80.5% observed in 2Q23.“The higher cost ratio was mainly caused by higher manpower and higher operational cost.
“Given the change in cost structure, manpower is currently the largest cost component at 24.2%.
This overtook direct cost, which made up 22% of total cost,” said MIDF Research, adding that it expects a similar cost structure in the quarters ahead as management alluded to some salary adjustment in 3Q24.
As for capex, MIDF said it remains conservative with 2Q24 capex shrinking by 51.9% year-on-year to RM255mil.
“Premised on this, we view that FY24 capex could come at the lower end of the management guidance of between 14% and 18% of revenue.
“Nonetheless, we expect the usual seasonality in capex to remain, whereby quarterly capex will peak in the fourth quarter,” said MIDF Research.
