RHB Research noted the rollout of the second 5G network will see TM gaining the most.
PETALING JAYA: Telekom Malaysia Bhd
(TM) remains a preferred pick in the telecommunications sector due to the group’s structural growth prospects, return on invested capital accretion, capital management upside and undemanding valuation.
There is also a natural hedge between the group’s US dollar loan (about 32% of debt) and US dollar revenue, mainly wholesale, with the bulk of revenue sourced domestically.
Following a recent meeting with TM’s management, RHB Research said the group highlighted its “high-press” approach to defend its retail fibre broadband/Unifi business with strong intention to grow its dividends.
TM also sees limited impact on the data centre (DC) business from the proposed US artificial intelligence (AI) diffusion rules, added the research house.
RHB Research in a report said “TM will continue to defend its value proposition despite the stiff FBB competition in the market via tactical offerings”.
It noted that the usage of graphics processing units (GPUs) at TM’s DCs are confined to lower-end Nvidia chips, which are not subject to the proposed US AI diffusion rules.
The first phase of TM’s new AI-DC with Singtel is on track for completion in the second half of financial year 2026 (2H26).
“Overall, we believe TM’s stable earnings before income tax (Ebit) guidance for the forecast financial year 2025 (FY25) versus RM2.3bil in FY24, has factored in upside risks to cost including higher 5G wholesale charges.
“There is upside to Ebit, in our view, as TM has typically outperformed its guidance in the past with cost controls still a core area of focus,” said RHB Research.
Meanwhile, the group’s DC capacity expansion and new undersea cable is also coming on stream.
“We see the commissioning of the SEA-ME-WE6 undersea cable by mid-2026 fuelling stronger wholesale revenue for the group going forward (FY24: 26% of revenue),” added the research house. This comes from greater managed connectivity services and indefeasible rights of use sales.
RHB Research noted, “The doubling of TM’s DC capacity by 2H25 (to about 40MW) will also drive stronger DC revenue going forward as TM capitalises on the robust demand from customers for AI- related workload.
“This comes on top of the GPU-as-a service commissioned late last year with TM having already signed-up a number of global enterprise customers.” explained RHB Research.
According to TM, while AI-DC contracts are typically shorter in nature, they offer significantly higher margins versus co-location margins.
The research house also noted the rollout of the second 5G network will see TM gaining the most given its stranglehold over fibre backhaul connectivity across over 5,000 sites nationwide.
“We believe the impact from the recent award of a second fibre optic access provider for rail tracks (1,600km) is minimal as TM still has the largest fibre connectivity in the country with more than 740,000km of fibre,” said RHB Research.
The research house has kept a “buy” call on the stock with a target price of RM8.15.
It noted TM’s management is committed to grow earnings and dividends, and would look to further optimise and gear up its balance sheet.
However, the key risks include stronger-than-expected retail competition, weaker-than-expected earnings and regulatory setbacks.
