TM: Cost Efficiencies Drive 1H25 Profit Amid Revenue Dip

The company reported a core profit of RM876 million for the first half of 2025 (1H25), marking a 3% year-on-year increase. This performance was largely in line with both internal projections and consensus estimates, representing 51% of full-year expectations. The improved profitability was primarily attributed to significant cost efficiencies, particularly a 4% year-on-year reduction in depreciation and amortisation (D&A) expenses.

Performance Review

The growth in core profit despite a challenging revenue environment underscores the effectiveness of the company’s cost management strategies. The decline in D&A expenses was a key factor, as several assets approached the end of their useful lives, reducing the burden of non-cash charges. While the group continues to make strategic reinvestments, these related assets are currently classified as work-in-progress and are not yet subject to depreciation.

However, the period saw a softening of business momentum, with overall revenues declining by 2% year-on-year in 1H25. This was a broad-based weakness, affecting key segments such as unifi (-1% YoY), TM One (-5% YoY), and TM Global (-3% YoY). Consequently, EBITDA also contracted by 3% year-on-year. The normalisation of work-from-home trends and heightened competition led to a considerable slowdown in unifi net additions, which increased by only 5,000 quarter-on-quarter compared to the more than 100,000 additions seen during the pandemic peak.

Strategic Initiatives and Outlook

Despite the softer first half, management remains optimistic about delivering low single-digit revenue growth for the full year. This positive outlook is underpinned by several strategic drivers, including new bandwidth deals within TM Global, enhanced traction in converged offerings for unifi, and the ongoing expansion of its data centre (DC) business under TM One.

The company’s significant data centre expansion is progressing as planned. Construction of the 64MW Johor data centre, a joint venture with Nxera MY, is on track for completion by mid-2026. Management reports a healthy deal funnel and maintains a positive demand outlook for the facility, which is projected to contribute approximately 10% of the company’s FY30F profits. Additionally, expansion works at the Iskandar Puteri Data Centre (IPDC) and Klang Valley Data Centre (KVDC) are expected to be completed by the fourth quarter of 2025 (4Q25).

Analyst View

AmInvestment Bank has maintained its HOLD recommendation on the stock with an unchanged target price of RM6.60 per share. The valuation is based on an unchanged target EV/EBITDA multiple of 5x and CY26 EPS, incorporating the 51% joint venture stake in Nxera MY. The investment bank noted that while new catalysts are needed for significant upside, the group continues to offer stable demand and a decent dividend yield of 4%.