• We foresee an attractive value proposition for TM and TIME amid a favourable expansion in fixed broadband and data centre-related services. This will be topped by a strong underlying demand and continuous fibre network growth.

• We have an OVERWEIGHT recommendation on the sector with a BUY call on TM (TP: RM7.58), and TIME (TP: RM6.65).

Positive Performance Recent Corporate Earnings Season

Telecommunication companies namely, TM and TIME registered commendable revenue and earnings growth in their latest financial results, underpinned by strong underlying demand for fixed broadband and data centre services. Revenue and earnings increased by 2.9% and 4.4% YoY for TM thanks to positive contribution from Unifi (+10.7%) and TM Wholesale (+2.1%). TIME revenue and earnings, on the other hand, improved by 11.5% and 12.6% owing to higher contribution from data and data centre segment.

Upside Potential for Broadband Market

Malaysia made significant strides in network infrastructure development as a result of various government initiatives, notably the JENDELA and 12th Malaysia Plan (12MP). This underpinned an increase in percentage of populated areas with 4G access, improved average mobile data speed, and growing premises covered in accessing fixed stable broadband. In tandem with this, TM and TIME steadily increased their fixed broadband subscribers, resulting in 2.8m subscribers for TM. TIME on the other hand recorded double-digit growth YoY (+12.2%) on its data segment. We are optimistic on revenue outlook for fixed broadband segment given to strong underlying demand and continuous fiber network growth.

Bright Outlook for Data Centre Services

The optimistic outlook for data centre and cloud services demand will benefit service providers, particularly TM and TIME. Besides, the implementation of MyDigital initiative by the government, together with the growing demand from the public and private sectors towards digitalization, will act as a major driver that will push demand for digitalization-related services.

Pending Decision on 5G Network

As the development is still awaiting a decision and expected to be decided soon, we anticipate TM to continue to be the primary beneficiary in delivering 5G fibre leasing services - leveraging on its extensive network infrastructure nationwide.

OVERWEIGHT Recommendation on the Sector

We have an OVERWEIGHT recommendation on the sector with a BUY call on TM (TP: RM7.58) owing to favourable outlook to be driven by 1) robust new subscriber growth, 2) pent-up demand for data centres and cloud services for industry demands (public and enterprise), and 3) rapid development of 4G and 5G network infrastructure. We also like TIME (BUY; TP: RM6.65) as we anticipate its business clusters (data and data centre) will improve progressively in the following years. Correspondingly, we anticipate industry players, particularly TM and TIME, to outperform and remain competitive, implying their associated positive outlook in the near future.

Source: BIMB Securities Research - 6 Jul 2022