Investment Highlights

• We maintain BUY on Telekom Malaysia (TM) with an unchanged DCF-based fair value of RM7.10/share based on a WACC of 6.2%, terminal growth rate of 2% and neutral ESG rating of 3 stars. This implies an FY21F EV/EBITDA of 7.4x, which is 43% below Maxis.

• Datuk Mohammed Azlan Hashim (aged 64) has been appointed as TM’s non-executive chairman, effective 1 August 2021.

• Azlan replaces Tan Sri Mohd Bakke Salleh (aged 67) who has been appointed as the new chairman of Petroliam Nasional Bhd (Petronas). Bakke is already a non-executive director of Petronas as well as the chairman of its risk committee and a member of its audit committee.

• TM’s incoming chairman, Azlan has extensive experience in investment and financial services, including as a board member of Khazanah Nasional as well as on the board and chairmanship of the Employees Provident Fund’s (EPF) investment panel.

• He was chief executive of Bumiputra Merchant Bankers, managing director of Amanah Capital Malaysia and executive chairman of Bursa Malaysia Securities. Azlan is also currently the chairman of D&O Green Technologies, Marine & General and IHH Healthcare.

• We expect Azlan to work well with TM’s managing director/group CEO Imri Mokhtar, who has been in that role for a year.

• Under Imri’s direction, TM generated substantive cost savings as FY20 operating expenses declined by 6.7% YoY. For 2021–2023, management has identified over 40 key initiatives to drive TM’s next phase of growth. In 1QFY21, TM’s fixed broadband subscribers rose by 110K QoQ as an impressive 175K increase in unifi users to 2mil was partly offset by a 65K decline in Streamyx to 492k. This was the highest ever increase in unifi users – 8.3x Maxis’ 21K.

• Given TM critical role in the MyDigital initiative with its ownership of the High-Speed Broadband network, we expect a faster pace of growth for its wholesale revenue beyond FY21F. Likewise, TM One’s revenue growth could also accelerate with the group’s appointment as the sole Malaysian cloud provider for government data.

• The stock currently trades at an attractive FY21F EV/EBITDA of 6x (half of Maxis) with a fair dividend yield of 3%.

Source: AmInvest Research - 13 Jul 2021