• Telekom Malaysia (TM) has announced an internal reorganization whereby three core business clusters i.e. Unifi, TM One, and TM Wholesale will be transferred to a single operating entity – TM Technology Services (TM Tech). TM Tech was formerly known as webe Digital.

• The reorganisation will turn TM into an investment holding company while TM Tech will be the main operating entity. The streamlining of operations will help improve the group’s operational efficiency, reduce red tapes, and simplify customer touchpoints while providing a more seamless customers experience.

• The consolidation of the operations will also help integrate TM’s offerings, especially within the fixed-mobile convergence space.

• The proposal will not have any impact on the group’s issued share capital and its listing status. The integration is expected to be completed by December 2023 and it does not require approval from TM’s shareholders.

• We made no changes to our earnings forecasts following the announcement as we do not expect the impact to be immediate.

• We maintain BUY on TM with an unchanged DCF-based (WACC: 8%, terminal growth: 1.5%) fair value of RM7.20, which implies an 18x FY23F PE (near 5-year mean of 17.8x).

• The stock is trading at a compelling 13.8x, below its 5-year historical average of 17.8x while offering a decent dividend yield of 3%.

Source: AmInvest Research - 15 Dec 2022