• Unifi's earnings will be supported by burgeoning demand for data, counterbalancing the effects of declining wholesale prices.

• Drivers to TM's earnings include: (i) the introduction of enhanced 5Grelated products, (ii) benefits from ongoing infrastructure development of 4G and 5G networks by DNB, leveraging on TM's extensive nationwide network infrastructure, and thus a positive contribution to TM’s Wholesale business, (iii) the expansion of internet sector, and (iv) sanguine outlook on data center business

• Maintain a BUY call on TM with a TP of RM7.77. Our valuation is derived based on DCF valuation with a WACC of 7.4% and a long-term growth of 2.0%.

Decent Start

TM's 3MFY24 revenue saw a slight YoY increase of +1.8%. Net profit surged by +28.7% YoY to RM425mn, primarily due to lower depreciation and amortisation, which decreased by -13.2% QoQ and -19.6% YoY. Unifi's revenue dropped slightly or by -1.0% QoQ and -2.7% YoY, despite a 1.8% growth in fixed broadband subscribers to 3.14mn. TM Global's revenue increased by +12.1% YoY to RM742.8mn, driven by higher income from Managed Wavelength services and Indefeasible Right of Use from global carriers.

Growth Fueled by an Increase in Unifi Subscribers and Data Demand

Despite stable Unifi ARPU in the current quarter, TM is expected to maintain strong earnings in FY24 due to increased demand for data. Optimism surrounding Unifi Mobile's top-line growth, driven by a focus on conversion offerings and the recent UniVerse campaign, which was launched on 27 May 2024, offering a comprehensive suite of services. Additionally, TM's collaboration with Singtel to develop a data center in Johor is seen as a strategic move to enhance its competitive edge in digital infrastructure. TM announced that, addition to the new data center, it is doubling the capacity of its Klang Valley and Iskandar Puteri DCs to 40MW. This expansion will significantly increase data center capacity, which is essential for deploying 5G technology and supporting data-intensive business applications. Factors such as a shift to cloud computing, growing data volumes, and the rise of generative AI are anticipated to accelerate data center development locally and globally.

Maintain a BUY Call with TP of RM7.77

Maintain a BUY call on TM with a TP of RM7.77. Our valuation is derived based on DCF valuation with a WACC of 7.4% and a long-term growth of 2.0% (refer table 1).

Risks to Our Call

Risks to our call include: (i) increased competition from other service providers in terms of pricing and network stability, posing a risk of downward earnings impact for the Unifi segments, (ii) unfavorable regulatory changes, and (iii) weaker-than-expected earnings.

Source: BIMB Securities Research - 17 Jul 2024