CIMB Research increased its dividend payout ratio assumption from a flat 60% in FY25 to FY27 to 70% for FY26 and 80% for FY27.
PETALING JAYA: Telekom Malaysia Bhd
(TM) will likely consider sustainably raising its dividend payout ratio (DPR) from financial year 2026 (FY26) onwards.
This is so since there are no major capital expenditure (capex) surges expected in FY25 to FY27, and it is now in a stronger financial position.
CIMB Research said a recurring question from recent investor meetings was whether there is upside potential to TM’s dividend policy.
TM’s balance sheet is under-leveraged, and CIMB Research sees potential for TM to raise its DPR from FY26 onwards.
CIMB Research increased its DPR assumption from a flat 60% in FY25 to FY27 to 70% for FY26 and 80% for FY27.
This translates to a dividend per share of 26.1 sen to 36.6 sen for FY25 to FY27, and the dividend yield climbs from 3.7% in FY25 to an attractive 5.2% in FY27.
Additionally, its discount cashflow-based target price (TP) has been raised slightly by 1% to RM7.60 a share, on lower taxes, due to reduced profit before tax.
The research house believes an increase in TM’s DPR would also support a re-rating of its share price towards its TP.
CIMB Research is maintaining its “buy” call on the stock.
Its FY26 to FY27 core earnings per share (EPS) assumptions are only slightly reduced by 0.1% to 0.3%, owing to lower interest income on a smaller cash pile.
The key downside risks cited for its stock call are fiercer broadband competition and lower-than-expected return on investment on data centre investments.
TM’s net debt (including finance leases)/earnings before interest, tax, depreciation and amortisation (Ebitda) has fallen from 1.4 times at the end of FY19 to just 0.5 times at the end of FY24.
This is owing to Ebitda growth, moderate mid-teens capital expenditure/sales and conservative DPR (51% to 59% of reported EPS).
CIMB Research currently forecasts TM’s net debt/Ebitda falling further to 0.3 times, 0.3 times and 0.1 times by the end of FY25, FY26 and FY27, respectively, before turning net cash in FY28.
TM is significantly under-leveraged versus its telco peers (ex-TIME Dotcom Bhd), where end-FY24 net debt/Ebitda was at 2.1 to 2.7 times.
It projects TM’s capitalised capital expenditure (capex) for FY25 to come in at RM1.79bil, equivalent to 15% of revenue. For FY26, it assumes that capex will rise to RM2.24bil, or 19% of revenue, as it has factored in capex of RM350mil to roll out fibre backhaul connectivity for U Mobile’s 5G network.
There is a possibility that the investment incurred will be much lower, as TM may be able to substantially leverage its existing fibre network.
