Broker: UOB Kay Hian
Date of Report: 29 May 2025

Telekom Malaysia 1Q25 Results: Navigating Competition and Growth with Resilient Performance

Overview: Modest Upside Amid Competitive Challenges

Telekom Malaysia Berhad (TM) delivered its 1Q25 results in line with expectations, demonstrating resilience despite a fiercely competitive landscape. The company, a leading fixed-line operator offering fixed voice, broadband, mobile services, and ICT solutions, continues to face pressures from higher 5G access costs, intense price competition, and foreign exchange volatility. Nevertheless, TM maintains a strong balance sheet and offers an attractive dividend yield, appealing to income-focused investors.

Stock and Shareholder Snapshot

• Share Price: RM6.85
• Target Price: RM7.00 (Upside: +2.2%)
• Market Cap: RM26.29 billion (US\$6.22 billion)
• Major Shareholders: Khazanah Nasional Bhd (20.1%), Employees Provident Fund (16.5%), Skim Amanah Saham (10.4%)
• Dividend Yield (2025F): 4.6% (estimated 70% payout)
• FY25F NAV/Share: RM2.77
• FY25F Net Cash/Share: RM0.04

1Q25 Financial Performance: Key Highlights

• Core Net Profit: RM401 million (+1% YoY, +12% QoQ)
• Turnover: RM2,851.5 million (+0.5% YoY, -6.5% QoQ)
• EBITDA: RM1,089.2 million (-8.4% YoY, +5.9% QoQ)
• EBITDA Margin: 37.8% (down 2.8 ppt YoY, up 4.8 ppt QoQ)
• Reported Net Profit: RM401.2 million (-5.6% YoY, -45.1% QoQ)
• Net Margin: 14.1% (vs. 14.0% YoY)

Segmental Revenue Breakdown (1Q25)

Business Segment Analysis

Unifi: Subdued Amid Aggressive Competition

• Net Adds: 6,000 customers in 1Q25
• Revenue: RM1,386 million (-1% YoY, -5% QoQ)
• ARPU: RM127/month (down from RM134 in 4Q24 and RM130 in 3Q24, -5% QoQ)
• Key Drivers: Aggressive convergence campaigns, discounts on device bundle plans, and elevated customer acquisition costs

The Unifi segment’s subdued performance was largely a result of heightened competition, leading to discounting and increased acquisition costs.

TM One: Sluggish Orderbook and Deferred Projects

• Revenue: RM669 million (-1% YoY, -15% QoQ)
• Reason: Project delivery timing, technology migration, and deferment in certain customer projects

TM Global: Steady Demand for Data and Connectivity

• Revenue: RM761 million (+2% YoY, -3% QoQ)
• Drivers: Seasonality in international data and global voice traffic; healthy C2C business with rising demand for data centre services

Cost Structure and Margins

• Core EBITDA Margin: 38% (down 3ppt YoY)
• Cost Pressures: Higher 5G access costs (shift to fixed minimum commitment model), higher device costs, adverse forex movements
• Profitability Outlook: Management remains confident of achieving 2025 EBIT guidance, supported by higher-margin offerings and lower depreciation/amortisation

Balance Sheet Strength and Dividend Prospects

• Net Debt/EBITDA: 0.77x
• Net Gearing: 36%
• Dividend Yield (2025F): 4.6%
• Comment: TM’s robust balance sheet and healthy cash position enhance prospects for sustained, possibly higher, dividend payouts

Key Financials (Selected Years)

Key Corporate Developments

• 5G Mobile Backhaul Services Agreement: TM signed a RM2.4 billion, 10-year contract with UMobile for backhaul infrastructure, supporting Malaysia’s second 5G network. This is expected to contribute approximately 2% to annual revenue and 1% to net profit over the contract term.
• Data Centre Expansion: TM is factoring in a 64MW joint venture data centre with Singapore Telecommunications, set to be operational in 2026. A blue-sky scenario of 200MW could imply a fair value of RM7.80 per share, though this is only likely by 2030.

Environmental, Social, and Governance (ESG) Updates

• Environmental: Achieved a 30% carbon emission reduction from the 2019 baseline by 2024 through emission management, energy efficiency, and renewable adoption.
• Social: Provided nearly RM1.2 million in humanitarian relief, aiding over 25,000 individuals nationwide via Yayasan TM and partnerships.
• Governance: Maintains strong transparency, with anti-bribery and anti-corruption policies, and conducts integrity screening on new vendors via the MACC E-System.

Valuation and Recommendation

• Rating: HOLD (Maintained)
• Target Price: RM7.00 (DCF-based, includes 64MW data centre JV)
• Upside Potential: 2.2%
• Valuation Sensitivity: A 200MW data centre scenario could raise fair value to RM7.80, with realization expected only by 2030.
• Key Risks: Economic recession impacting TM One’s corporate sales and potential rise in trade receivables.

Detailed Financial Tables

Profit & Loss Summary (in RM million)

Balance Sheet Summary (in RM million)

Conclusion: Telekom Malaysia Stands Its Ground

Telekom Malaysia’s first quarter of 2025 showcased its ability to maintain steady earnings and a robust balance sheet amid stiff competition and evolving industry dynamics. With a clear focus on high-margin offerings, efficient capital management, and sustainable ESG practices, TM remains positioned for stable, if unspectacular, growth. The stock offers a defensive yield and moderate upside, making it a solid hold for investors seeking stability within Malaysia’s communications sector.