TM: Robust Growth Trajectory Affirms ‘Buy’ Rating Despite Near-Term Earnings Normalisation
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An investment bank has reiterated its “Buy” rating on a leading Malaysian telecommunications provider, maintaining an unchanged target price of RM0.25, reflecting confidence in its long-term growth prospects. This positive outlook comes despite an anticipated sequential decline in core net profit for the fourth quarter of 2025, primarily due to a normalisation of its effective tax rate.
Performance Review and 4Q25 Outlook
The company is expected to see a sequential increase in its fourth-quarter 2025 revenue, driven by strong contributions from its global wholesale segment (TM Global) and year-end project deliveries. The enterprise solutions division (TM One) is also forecast for modest sequential improvement, particularly in cybersecurity and cloud-adjacent services. However, core net profit for 4Q25 is projected to decline to between RM500-550 million, down from RM691 million in 3Q25. This reduction is primarily attributed to the effective tax rate returning to a historical range of 25-30%, following a significantly lower rate of 4.5% in the previous quarter due to tax liability reassessments. The consumer segment (Unifi) revenue is expected to remain largely flat amidst subdued subscriber growth and intense market competition.
Strategic Growth Drivers
Domestic connectivity remains a primary engine for the global wholesale division (TM Global), propelled by ongoing 4G/5G backhaul deployments and High Speed Broadband (HSBB) access expansion. The company’s data centre capabilities are also expanding, with existing Klang Valley Data Centre (KVDC) and Iskandar Puteri Data Centre (IPDC) (each adding 10MW) now operational. These expansions are crucial for meeting rising demand from hyperscaler clients. Furthermore, the 64MW Nxera data centre is progressing well, currently 15% complete and on track for commissioning in 3Q26, which is expected to drive double-digit revenue growth for the data centre segment in the longer term. The ongoing development of new cable projects, such as the Asia Link Cable (ALC) set for completion in 2026, aims to create sellable capacity for future demand.
Future Outlook and Recommendation
The investment bank remains positive on the company’s long-term growth trajectory, anchored by its leading position in Malaysia’s fixed broadband market and its pivotal role in the national fibre and internet infrastructure ecosystem. Forecasts indicate that TM Global’s revenue will grow by 2.3-3.6% year-on-year over 2025-2027, with Unifi also projected for 1.2-2.4% revenue growth. While core earnings are expected to rise by 22% in 2025 due to a lower effective tax rate, they are anticipated to decline by 9% in 2026 as tax normalisation takes full effect, before modest growth resumes in 2027. Key risks to the “Buy” call include weaker-than-expected recovery in average revenue per user (ARPU), intensifying competition in fixed broadband, rising operational costs, slower data centre demand growth, and regulatory changes. Despite these, the strategic initiatives and strong market positioning underpin the maintained positive rating.
