CGS-CIMB reiterates its ADD call on Telekom Malaysia Bhd following a recent meeting with the group’s management at the research house’s Malaysia Corporate Day 2024.
In its Company Note today (Jan 9), the research house post meeting, it finds indications of positive revenue and earnings trend at TM in the group’s FY24.
“Growth in retail broadband and wholesale services coupled with lower tax rates are set to spur earnings in FY23F and FY24F.
“We estimate TM to deliver 10.4% and 12.3% pre-tax profit growth in FY23F and FY24F driven by 4.3% and 3.6% revenue growth respectively,” it said.
CGS-CIMB said it made the conclusion based on healthy demand for TM’s fixed mobile converged product that was launched in October 2023, limited downtrading for its fibre broadband products and better than management-expected outcomes from its wholesale broadband pricing negotiation.
Its ADD call on TM, are based on an unchanged enterprise value to earnings before interest, taxes, depreciation, and amortization ratio (EV/EBITDA)-based (5.6x FY25F) TP of RM7.30.
“At current valuations of 13.4x FY24F P/E and 4.5x FY24F EV/EBITDA, TM’s valuations look undemanding compared to both of its domestic and Asean peers.
“We see continued earnings delivery coupled with potentially higher dividends providing the key re-rating catalysts over the next 12 months,” it said.
It added TM’s management’s expects its capex to sales ratio to stay between 16 and 18% range for the foreseeable future, barring any large project-based investments.
In the research house’s view, one area that could drive capex higher would be investments in data centres.
“Our current estimates of capex to sales of 23%, 21%, 22% in FY23F, 24F, 25F are higher than management’s target range (of between 16 and 18%.
“Management clarified that such a project, should it materialise would be largely debt financed and should have no impact on TM’s dividend
policy of 40 to 60% of profit after tax and minority interest (PATAMI).
“At 0.9x net debt to EBITDA at end-Sep 2023, we believe that TM’s balance sheet is relatively under-geared and is ripe for the return of excess cash to shareholders,” it said.
The key downside risks of its call are increased regulatory intervention by the government in its social objectives and TM taking a leading role in a 5G wireless network.
