Telekom Malaysia Bhd (TM) has grown by leaps and bounds through various cycles of the country’s telecommunications technology evolution since its genesis as the Malayan Telecommunications Department in 1946.
Over the past three years, in its journey to elevate the nation’s telecommunications infrastructure, TM has continued to deliver stellar earnings performance, especially with the higher demand for home broadband services arising from work-from-home arrangements due to the Covid-19 pandemic.
The internet and hyper-connectivity of a household can be likened to a basic survival need during the pandemic, with TM’s customers expecting continuous connectivity, says managing director and group CEO Imri Mokhtar in the group’s latest annual report.
“As a group, we are committed to delivering coverage quality to ensure continuity and consistency,” he adds.
The group’s net profit jumped over four times from just RM153.2 million in the financial year ended Dec 31, 2018 (FY2018) to RM632.7 million in FY2019, before growing by another 61% to RM1.02 billion in FY2020.
In times of global upheaval, Imri says the fundamental strength of TM’s assets becomes ever more evident.
“The network that we are anchored on — over 650,000km of fibre nationwide — provides the robustness and the resiliency to support the increase in demand by Malaysians,” he explains.
Although net profit fell by 12% to RM895.2 million last year due to the provision for Cukai Makmur, TM still delivered a risk-weighted compound annual growth rate (CAGR) of 80.1% over a three-year period, leading it to win the The Edge Billion Ringgit Club’s award for highest growth in profit after tax over three years in the telecommunications and media sector.
In fact, FY2021’s earnings before interest and tax rose 6.6% to RM1.7 billion from RM1.6 billion in FY2020, on the back of solid revenue improvement, coupled with the group’s continuous cost optimisation initiatives.
TM also clinched the award for highest returns to shareholders, delivering a CAGR of 18.5% for the three-year review period between March 29, 2019, and March 31, 2022, thanks to a strong run in its share price.
Apart from stronger broadband demand, the investment fraternity also perceives TM as the beneficiary of the potential proliferation of the 5G network, due to its role as the fibre backhaul infrastructure provider to Digital Nasional Bhd (DNB), the special-purpose vehicle set up by the government to roll out next-generation internet connectivity in the country.
TM will be getting RM2 billion over 10 years by leasing its fibre infrastructure to DNB, the sole 5G wholesale service provider in Malaysia.
In a report dated Aug 26, RHB Research says aside from internet services, TM’s wholesale business is also expected to remain a key earnings driver, backed by the aggressive 5G rollout and robust demand for domestic wholesale access, given the still-modest fibre broadband penetration in the country.
The research firm has kept its “buy” recommendation with TM being one of its top picks in the telco sector, but lowered its target price to RM7.40 from RM7.80 after imputing a higher cost of equity from the rise in bond yields.
“We see the structural growth story continuing for Telekom Malaysia, our preferred large-cap telco pick, with management executing well on its transformation programme,” says RHB.
According to Bloomberg data at the time of writing, the stock had 21 “buy” recommendations, one “hold” and two “sell” ratings, with a consensus target price of RM7.01 per share.
For the first half of FY2022 (1HFY2022), the group’s net profit grew 32% to RM717.91 million from RM544.06 million in the previous corresponding period, while revenue rose 7.3% to RM5.98 billion from RM5.57 billion over the same period.
CEO Imri had in August reportedly hinted at the likelihood of a better-than-expected earnings performance in 2022 against its initial guidance of a low- to mid-single-digit growth in revenue, and earnings before interest and tax (Ebit) of more than RM1.8 billion.
“We do expect the growth momentum to continue in the second half in terms of revenue and profit,” he told reporters at the group’s 1HFY2022 media briefing, adding that “We are confident of delivering that [initial guidance], and if there is any market re-guidance, let’s wait for 3QFY2022.”
TM reported a 29% growth in Ebit to RM1.26 billion for 1HFY2022. Imri said, “looking at the momentum, if it is necessary, we will be providing new market guidance”.