TIMECOM: Cost Efficiencies Drive Earnings Beat, Analysts Project Significant Upside
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates that a major telecommunications company’s third-quarter 2025 results slightly exceeded expectations, primarily driven by effective cost efficiencies. The strong performance has led TA SECURITIES to issue a “BUY” recommendation, with a target price of RM0.25, representing a significant 25.0% upside from the last traded price of RM0.20.
Strong Performance Driven by Cost Optimisation
The company reported a core PATMI (Profit After Tax and Minority Interest) of MYR138.3 million for 3Q25, marking an impressive 21% quarter-on-quarter and 33% year-on-year growth. For the first nine months of 2025, core PATMI reached MYR371 million, up 17% year-on-year, accounting for 77% of the full-year estimate. This outperformance was largely attributed to lower-than-expected tax expenses and successful tax optimisation initiatives, underscoring robust cost management. In a positive move for shareholders, a special interim DPS of 21.64 sen was declared, payable on December 22.
Segmental Growth Amidst Market Dynamics
In the retail segment, fibre broadband (FBB) revenue grew 2.3% quarter-on-quarter and 12% year-on-year, driven by 8,000 new subscribers and stable average revenue per user (ARPU). This growth outpaced competitors like Maxis and was comparable to Telekom Malaysia and CelcomDigi. The wholesale segment saw stronger quarter-on-quarter growth, boosted by data centre (DC) connectivity deals, although wholesale revenue was down 3% year-to-date. Enterprise revenue also ticked up quarter-on-quarter due to lumpy government projects.
The 30%-associate AIMS Group, a DC business, continues to experience robust co-location demand, with Block 3 of AIMS@CJ nearly pre-sold to capacity within six months of completion. However, the report notes that AIMS’ earnings contribution may see a tapering off due to higher depreciation and financing charges from aggressive DC capital expenditure. Challenges in the retail segment include competition from fixed wireless access offerings and difficulties in penetrating single-dwelling units.
Future Outlook and Capital Management Strategy
The company is well-positioned to continue outpacing industry growth in the expanding FBB market. Management plans to optimise its capital structure over the next 12-24 months, maintaining a net debt/EBITDA threshold of 1.5x, currently reporting MYR659 million in net cash. With annual capital expenditure managed between MYR300-400 million, there is significant scope for higher dividends, including recurring special payouts. A MYR200 million payout (approximately 11 sen per share) is expected to be a recurring dividend.
Potential downside risks include increased retail broadband competition, weaker-than-expected earnings and/or margins, and management execution. Conversely, upside risks include higher-than-expected dividends and/or earnings, and lower-than-expected capital expenditure.
Investment Recommendation
Given the strong financial performance driven by cost efficiencies and a clear capital management strategy, analysts at TA SECURITIES have maintained their positive outlook. The report reiterates a “BUY” recommendation with a target price of RM0.25, indicating confidence in the company’s ability to deliver significant shareholder value and capital appreciation in the near term.
