TM: Earnings Outlook Strengthens on Strategic Cost Efficiencies and Data Centre Expansion
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading telecommunications provider is set for a robust financial performance in the coming years, driven by strategic cost-efficiency initiatives and significant expansion in its data centre operations. Despite potential short-term distortions from voluntary separation scheme (VSS) costs in FY26, analysts project a strong rebound in FY27, with core earnings forecasts for FY27-28F lifted by 1% and 9% respectively.
Performance Review and Cost Optimization
The revised outlook attributes much of the anticipated growth to substantial manpower cost savings, stemming from the VSS, which is expected to yield a payback period of just 1.9 years. Further enhancing cost efficiencies, a new 5G multi-operator core network (MOCN) deal with U Mobile (UM) is set to reduce 5G wholesale costs, mitigating the direct cost spike experienced in FY25 due to a previous fixed 5G access payment model. Lower financing costs are also expected to contribute positively to the bottom line in FY27-28F.
Robust Core Business and Data Centre Growth
The provider’s core business segments are poised for sustained growth. The business-to-consumer (B2C)/Unifi division is projected to achieve low-single digit growth, bolstered by its converged offerings. The wholesale segment (TM Global) is expected to maintain high-single digit growth, potentially reaching low-double digits, driven by structural market demand and new sub-sea cable capacity. Optimism also surrounds the enterprise segment (TM One) following a recent leadership change, with previous challenges from contract renewal price-downs now largely resolved.
A key growth driver is the significant expansion of data centre (DC) contributions. The company has already pre-sold 50% of its expanded capacity at the Iskandar Puteri Data Centre (IPDC) and 30-40% at the Klang Valley Data Centre (KVDC). The TM-Nxera AI-DC (Phase 1: 64MW) is also on schedule for completion in the second half of 2025, supported by a strong pipeline of inventory.
Dividend Policy and Capital Management
The company plans to progressively increase dividends, potentially supplementing ordinary payouts with special dividends. A new dividend payout ratio (DPR) policy, incorporating a minimum payout to ensure dividend certainty, is under consideration and expected to be announced by May. With its balance sheet geared at a record-low net debt-to-EBITDA of 0.4x, the provider is well-positioned to fund future capital expenditure (capex) from strong operating cash flows. Capex intensity may remain elevated in the medium term as the company invests in new sub-sea cables and network modernisation projects.
Analyst Outlook
Analysts maintain a BUY recommendation on the stock, raising the target price to RM0.25, representing an upside of 25.0% from the last traded price of RM0.20. The positive outlook is underpinned by the company’s strategic focus on cost efficiencies, robust core business performance, and aggressive expansion in high-growth data centre services.
