CGSI Research projected TM‘s domestic wholesale revenue to rise in 2025.
PETALING JAYA: CGS International Research (CGSI Research) is maintaining a positive outlook on Telekom Malaysia Bhd
(TM), expecting its overall data revenues, including retail, enterprise and wholesale, to grow at a 4% compound annual growth rate (CAGR) between the financial year ended Dec 31, 2023 (FY23) and FY26.
This is despite growing competition in the retail broadband segment.
The research house pointed out that, as the largest fibre network provider in the country, TM is the dominant provider of wholesale broadband access to other Internet service providers (ISPs).
“As such, it is still capturing a sizeable portion of the country’s broadband revenues, albeit with reduced economics if the customer loss is from a higher average revenue per user (Arpu) band,” the research house noted.
CGSI Research projected TM‘s domestic wholesale revenue to rise in 2025, driven by increased demand for transmission capacity as 5G network rollouts accelerate.
“The completion of recent data centre builds should also provide added demand for terrestrial and international fibre capacity,” it added.
In the first half of 2024 (1H24), TM’s overall data revenue increased by 3% year-on-year (y-o-y), with retail broadband revenue growing by 1.1% in the same period.
CGSI Research raised its FY24, FY25, and FY26 core net profit estimates for TM by 3.3%, 1.1%, and 1.7%, respectively, following the telco’s second quarter ended June 30, 2024 (2Q24) results.
It attributed the adjustment to two key factors – lower low-margin voice hubbing revenue and reduced depreciation expenses due to lower capital expenditure estimates.
The revised estimates now represent 104%, 115%, and 122% of Bloomberg’s consensus estimates for FY24, FY25, and FY26, respectively.
“We believe that following the 3Q24 results season in late-November, consensus estimates could rise further beyond management’s conservative FY24 earnings before interest and taxes (Ebit) guidance of RM2.1bil to RM2.2bil, with TM having already delivered RM1.26bil in 1H24,” it noted.
CGSI Research also pointed out that TM could positively surprise investors in the second half of 2024 with dividends.
With FY24 free cash flow of RM1.2bil or 32 sen a share and an under-leveraged balance sheet at 0.69 times net debt-to-earnings before taxes, interest, depreciation and amortisation as of end-June, CGSI Research believes there is potential for a special dividend in FY24.
CGSI Research reiterated its “add” call on the stock with a higher target price up by four sen to RM8.60 a share, reflecting its higher earnings forecast.
It added TM’s continued earnings growth supports an expansion in return on equity, which it believes the market is still not fully pricing in.
“We see continued earnings delivery, coupled with further data centre-related news flows, as potential re-rating catalysts,” the research house said.
At 13.3 times the forecast FY25 core price-to-earnings multiple, with an 18.3% forecast return on equity for FY25 and a 3.9% forecasted dividend yield for FY24, CGSI Research said TM’s valuations are attractive compared to its regional and domestic peers.
