In-Depth Analysis of Malaysian Telecommunications: A Look at Telekom Malaysia

Date: November 27, 2024

Broker: Maybank Investment Bank Berhad

Overview of Telekom Malaysia’s Recent Performance

Telekom Malaysia (TM), the leading fixed-line telecommunication company in Malaysia, has recently released its financial results for the third quarter of 2024. This report, prepared by Maybank Investment Bank Berhad, provides a detailed analysis of TM’s performance, highlighting key aspects of its operations, financial metrics, and future outlook.

Financial Performance and Quarterly Results

The third quarter of 2024 was a decent one for Telekom Malaysia, with the core net profit aligning with both Maybank’s and consensus expectations. The core net profit for 3Q24 stood at MYR309 million, reflecting a 44% year-on-year decline and a 21% quarter-on-quarter decrease. The decline was primarily attributed to increased costs and tax expenses, in line with the company’s guidance. Despite these challenges, TM’s revenue for 3Q24 was marginally higher compared to the previous quarter, driven by growth in Internet services and other segments, offsetting declines in Voice and Data services.

Unifi’s Subscriber Growth Amidst Competition

Unifi, Telekom Malaysia’s high-speed broadband service, continued to gain subscribers even amidst heightened competition in the home broadband space. The increase in subscribers was accompanied by a higher Average Revenue Per User (ARPU), contributing positively to TM’s Internet revenue. However, the total cost increased due to higher direct and operational costs, including forex transaction losses, causing a contraction in the 3Q24 EBITDA margin by 2.8 percentage points to 36.8%.

Management’s Strategic Outlook and Forecast Revisions

Telekom Malaysia remains optimistic about its data center ventures, recently formalizing a joint venture with Nxera, Singtel’s data center arm. In light of the latest run rates for revenue and depreciation, TM revised its net profit forecasts for FY24/25/26 by -2%/0%/1%. The performance of Unifi will likely remain a focal point in upcoming quarters due to the competitive landscape.

Stock Performance and Investment Recommendation

As of the report date, the share price of Telekom Malaysia was MYR 6.38, with a 12-month price target set at MYR 7.50, indicating a potential upside of 20%. The stock has shown varied performance over the past year, with a 52-week high/low of MYR 7.13/5.23. Major shareholders include Khazanah Nasional Bhd., Permodalan Nasional Bhd., and the Employees Provident Fund. Maybank Investment Bank Berhad reiterates a “BUY” recommendation for TM, supported by a stable outlook and strategic initiatives in place.

Key Financial Metrics and Forward-Looking Statements

Telekom Malaysia’s financial metrics reflect the company’s operational dynamics and strategic priorities. The revenue for FY24 is projected to be MYR 11,883 million, with an EBITDA of MYR 4,419 million. The core net profit is anticipated to be MYR 1,490 million, with a core EPS of 38.8 sen. Despite a challenging environment, TM’s profitability ratios, including EBITDA and EBIT margins, are expected to remain robust, providing a solid foundation for future growth.

Conclusion

Telekom Malaysia’s recent financial performance underscores its resilience and strategic focus amidst a competitive landscape. With a strategic emphasis on data center ventures and continued subscriber growth in Unifi, TM is well-positioned for future success. Investors are encouraged to consider TM’s robust financial metrics and strategic initiatives, as highlighted in the comprehensive analysis by Maybank Investment Bank Berhad.