Company Spotlight: News Fueling Financial Insights

TM’s Digital Expansion Fuels Bullish Growth Prospects

Telekom Malaysia (TM) is doubling down on digital infrastructure with its RM600 million investment in data center expansions, positioning itself as a key player in Malaysia’s AI and cloud computing boom. RHB Research maintains a BUY rating with a RM8.15 target price, citing a 23% upside potential, driven by TM’s progressing data center projects in Cyberjaya and Iskandar Puteri. The new facilities, slated for completion by 2025, feature AI-enabled capabilities and improved energy efficiency, targeting hyperscalers and enterprise clients. TM’s joint venture with Singtel (Nxera) further strengthens its foothold in the AI-driven data center market. Despite near-term risks like execution delays and competition, TM’s attractive 4% dividend yield and scalable infrastructure make it a top sector pick for long-term growth.

Sentiment Analysis

✅ Positive Factors

• Growth Potential: TM’s data center expansion (KVDC2, IPDC2) aligns with rising demand for AI and cloud services, with revenue and EBITDA projected to double by 2027.
• Dividend Appeal: 4% yield and improving balance sheet offer income stability.
• Tech Edge: AI-enabled facilities (GPUaaS) and energy-efficient designs (PUE 1.4) enhance competitiveness.
• Strategic Partnerships: Nxera JV with Singtel bolsters regional AI-DC capabilities.

⚠️ Concerns/Risks

• Execution Risks: Delays in data center commissioning or weaker-than-expected customer uptake could dampen growth.
• Competition: Rising pressure from colocation providers and global macro uncertainties may impact enterprise spending.

Rating: ⭐⭐⭐⭐

Short-Term Reaction

📈 Factors Supporting Upside

• Progress in construction (KVDC2 60% complete, IPDC2 70% complete) signals on-track execution.
• GPUaaS adoption at IPDC could attract early hyperscaler commitments.

📉 Potential Downside Risks

• Macroeconomic headwinds may delay enterprise investments in data center capacity.
• Quarterly earnings volatility (e.g., 13% net profit decline in 3Q24) could weigh on sentiment.

Long-Term Outlook

🚀 Bull Case Factors

• Full utilization of new data centers could double segment revenue by 2027.
• Malaysia’s digital economy growth and AI adoption tailwinds support TM’s infrastructure leadership.

⚠️ Bear Case Factors

• Intensifying competition erodes pricing power.
• Regulatory shifts or funding challenges for further expansion.

Investor Insights

Recommendations:

• Income Investors: Attractive for dividend yield (4%) and balance sheet stability.
• Growth Investors: High upside if data center demand materializes as projected.
• Risk-Averse: Monitor execution risks and macro trends before committing.

Business at a Glance

Telekom Malaysia Bhd is a triple-play telecommunications company. It generates revenue from the provision of fixed-line voice services, data, and broadband and multimedia services to businesses and individual households and consumers. Broadband and multimedia services are the majority of company revenue. Data is composed of products such as Ethernet and Internet protocol services. Additionally, the company's voice product generates revenue from providing business and residential telephony services. The company owns telecommunications infrastructure. It generates the vast majority of its revenue in Malaysia.
Website: http://www.tm.com.my

Unveiling Analysis: Opportunities and Risks Uncovered

Financial Performance Analysis

• Revenue Growth & Trends:

  • Telekom Malaysia (TM) reported revenue of MYR 11.73B (TTM), with a modest 0.19% YoY growth (2024 vs. 2023).
  • Q1 2025 revenue missed forecasts, attributed to declines in legacy voice and broadband segments.
  • 5-year revenue CAGR: ~1.2%, reflecting saturation in traditional telecom services.
  • Key Trend: Growth is driven by digital services (cloud, data centers) but offset by declining fixed-line and voice revenues.

• Profitability:

  • Gross Margin: ~40% (stable), Operating Margin: ~15%, Net Margin: ~17% (2024).
  • Net income grew 7.83% YoY (2024), but Q1 2025 profitability was pressured by staff costs and 5G investments.
  • Efficiency Check: Operating margins lag peers (e.g., Axiata Group: ~18%), suggesting higher cost structure.

• Cash Flow Quality:

  • Free Cash Flow (FCF) Yield: ~8.7% (TTM), but volatile due to capex cycles (e.g., 5G rollout).
  • P/OCF: 7.14x (reasonable vs. industry median of 8x).
  • Debt/FCF: 2.33x (manageable but rising with infrastructure investments).

• Key Financial Ratios:

  Ratio	TM (2024)	Industry Median	Implication
  P/E	12.74x	14.5x	Slightly undervalued.
  EV/EBITDA	6.65x	7.2x	Attractive vs. peers.
  ROE	~20%	15%	Efficient capital use.
  Debt/Equity	0.51x	0.7x	Conservative leverage.
  Quick Ratio	0.95x	1.1x	Adequate liquidity but below peers.

Market Position

• Market Share & Rank:

  • #1 fixed-line provider in Malaysia (~60% market share).
  • Mobile segment (via unifi) holds ~15% share (vs. Maxis: 35%, CelcomDigi: 40%).

• Revenue Streams:

  • Fixed Broadband (45% of revenue): Growth slowing (+2% YoY).
  • Digital & Cloud (20%): Fastest-growing segment (+25% YoY).
  • Legacy Voice (15%): Declining (-8% YoY).

• Industry Trends:

  • 5G Adoption: TM’s partnership with Digital Nasional Bhd (DNB) stalled, risking lag in 5G monetization.
  • AI & IoT: TM is investing in smart services, but peers (e.g., Tenaga Nasional) are ahead in AI integration.

• Competitive Advantages:

  • Infrastructure Monopoly: Dominates fiber optic networks.
  • Government Backing: Strategic projects (e.g., National Fiberisation Plan).

• Comparisons:

  Metric	TM	Maxis	Axiata
  EV/EBITDA	6.65x	8.1x	7.9x
  ROIC	12%	9%	8%
  Dividend Yield	3.78%	4.2%	2.5%

Risk Assessment

• Macro & Market Risks:

  • Inflation: Rising costs (e.g., energy, labor) could squeeze margins.
  • FX Volatility: 30% of debt is USD-denominated.

• Operational Risks:

  • 5G Rollout Delays: Failed DNB stake sale may delay 5G revenue.
  • Debt/EBITDA: 1.2x (safe but rising).

• Regulatory & Geopolitical Risks:

  • Government Oversight: TM’s tariffs are regulated, limiting pricing power.

• ESG Risks:

  • Carbon Footprint: High energy use from data centers.

• Mitigation Strategies:

  • Diversify into higher-margin digital services.
  • Hedge USD debt to reduce FX exposure.

Competitive Landscape

• Competitors & Substitutes:

  • Maxis: Stronger mobile presence but higher debt (Debt/Equity: 1.1x).
  • Axiata: Regional diversification but lower ROIC (8%).

• Strengths & Weaknesses:

  • TM’s Strength: Fiber dominance, stable cash flows.
  • Weakness: Slow mobile growth vs. Maxis/CelcomDigi.

• Disruptive Threats:

  • Starlink: Threatens rural broadband with satellite internet.

• Strategic Differentiation:

  • TM’s GPU-as-a-Service (AI infrastructure) is a unique offering in Malaysia.

• Recent News:

  • July 2025: TM’s data center expansion plans announced (targeting MYR 1B revenue by 2026).

Valuation Assessment

• Intrinsic Valuation:

  • DCF Assumptions: WACC 8%, Terminal Growth 2.5%.
  • NAV: MYR 7.20/share (7% upside).

• Valuation Ratios:

  • P/E (12.74x): Below 5-year average (14x).
  • EV/EBITDA (6.65x): Discount to peers (7.5x).

• Investment Outlook:

  • Upside Catalysts: Data center growth, 5G monetization.
  • Risks: Legacy revenue decline, staff cost pressures.

• Target Price: MYR 7.20 (12-month).

• Recommendations:

  • Buy: For value investors (undervalued vs. peers).
  • Hold: For dividend seekers (3.78% yield).
  • Sell: If 5G delays persist.

• Rating: ⭐⭐⭐⭐ (4/5 – Solid fundamentals with moderate growth potential).

Summary: TM is a stable, cash-generating telecom leader with undervalued shares. Its fiber monopoly and digital investments offset legacy declines, but 5G execution is key. Dividend investors may favor it, while growth investors should monitor data center expansion.

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