Positive outlook for TM on solid nine-month showing

PETALING JAYA: Telekom Malaysia Bhd’s (TM) lower than expected effective tax expense for the first nine months of this year (9M25) helped its numbers beat analysts expectations in a challenging telecommunications market.

The lower taxes saw the company post a 23% year-on-year (y-o-y) rise in net core profit to RM1.4bil for 9M25, which accounted for 86% of consensus full-year estimates despite revenue falling 0.5% to RM8.6bil.

In terms of segmental performance, Unifi revenue was largely unchanged at RM4.18bil, as growth in fixed broadband and bundled services was offset by declines in voice services and intense market competition, according to TA Research.

“The Unifi segment continued its fixed broadband subscriber growth, recording net additions of 19,000 quarter-on-quarter (q-o-q) to reach a new high of 3.2 million subscribers. Meanwhile, average revenue per user for the segment improved 3.2% q-o-q to RM130, supported by device campaigns that encouraged customers to upgrade to higher-speed packages,” the research house said following TM’s results announcement.

TA Research added that TM’s management expects service revenue to grow at a low single-digit rate, while its capital expenditure-to-revenue ratio would remain within the 14% to 16% range this year.

Pre-tax earnings may be lower as the company received a substantial number of applications, which are currently under review, for a voluntary separation scheme (VSS).

Excluding this effect, core pretax profit is projected to be broadly comparable with last year.

Kenanga Research noted that, apart from the VSS, other key takeaways from TM’s briefing for analysts was that work on TM’s upcoming global submarine cable, SEA-ME-WE-6, had been delayed due to a blockade in the Middle East. Progress on its other cable, Asia Link, remained on track and is expected to contribute to earnings next year.

TM’s data centre expansion in the Klang Valley and Iskandar Puteri in Johor, has progressed to the operational phase.

The main building of its upcoming 64MW data centre joint venture with Nxera has reached 15% completion, keeping the larger campus on track for full completion by the third quarter of next year.

Kenanga Research raised its earnings forecasts for TM for this year and next by 10% and 11%, respectively, to reflect higher copper cable sales and lower taxes this year.

TM said income from the sales of copper cable would be recurring as it continues retiring its copper network and migrates customers to Unifi’s fibre network.

The research house raised its target price on TM by 9% to RM8.86 a share from RM8.15 and maintained its “outperform” call.

TA Research also raised TM’s earning forecasts for 2025 to 2027 by 5.9%, 6.5%, 6.6%, respectively, following its latest results.

It also revised its target price on TM from RM8.30 to RM8.45 a share and reiterated a “buy” call on the stock.

CGS International Research (CGSI Research) raised its core net profit estimates next year and 2027 by 0.1% and 1.5%, respectively, but reduced its forecast for TM this year by 3.2% to reflect projection of a RM240mil VSS charge, with a two-year payback.

“We also raise our dividend payout ratio for this year to 2027 from 60% to 65%, 70%, 70%, respectively, as we believe TM’s balance sheet is under-leveraged, at 0.6 times as of the end of the third quarter versus Malaysian mobile operators’ more that 1.9 times, and needs to see improved capital management to ensure shareholder returns are sustained,” CGSI Research said.

CGSI Research raised its target price on TM from RM8.70 to RM9.25 a share while maintaining its “add” call on the stock.