• Telekom Malaysia (TM) has accepted the notification letter of implementation from the Malaysian government on the extension of the MyGov*Net concession for another 10 years, starting from 1 January 2023 until 31 December 2032.

• The project value is capped at RM4.9bil, inclusive of 6% sales and service tax. Assuming an 8% net margin, the contract could contribute up to RM392mil over the course of 10 years to TM’s bottom line.

• While the contract value is estimated to be 20% lower than the previous arrangement, we expect the difference will be offset by TM One’s 5G solutions contribution. We are forecasting a flattish <1% YoY growth of TM One’s FY23F revenue.

• Recall that MyGov*Net (previously known as 1Gov*Net) is the government’s integrated telecommunication network that is centrally managed by the Malaysian Administrative Modernisation and Management Planning Unit (MAMPU). The secured and dedicated network infrastructure integrates with the intranet, internet, the government’s campus network and public sector data centre, connecting more than 10,000 government premises in Malaysia and Malaysian embassies overseas.

• The project was a private-public sectors collaboration implemented through a BuildOperate-Own method, approved by the government in 2012. TM’s subsidiary, GITN, was awarded with the 10-year concession which started on 1 January 2013.

• All in, we made no changes to our earnings forecasts as the extension of the concession is largely within our expectations.

• The stock is trading at a compelling 13.2x, below its 5-year historical average of 17.8x while offering a decent dividend yield of 3%. Maintain BUY on TM with unchanged DCF-based (WACC: 8.5%%, terminal growth: 1.5%) fair value of RM7.20 which implies 18x FY23F PE (near its 5-year mean of 17.8x).

Source: AmInvest Research - 10 Jan 2023