Good time to accumulate. Being the largest fibre infrastructure owner in Malaysia, the recent weakness in TM share price has provided a great opportunity for investors to accumulate the prime beneficiary of Malaysia’s JENDELA and MyDIGITAL initiatives. After tumbling 17% from a high of RM6.66 (9 Feb) to RM5.54 last Friday, TM is currently trading at an undemanding 4.7x FY22 EV/EBIDTA (14% discount against its 5-year average of 5.47x) coupled with an impressive FY21-23 EPS CAGR of 12% (27% higher than industry average of 9.8%).

Twin-turbo boosting TM. Under the JENDELA program, fixed-line players’ accelerated network rollout resulted in an additional 378k new premise passed (2Q21: 342k) in 3Q21 despite the nationwide lockdown. As the government continues to focus on the expansion of the fiber-optic coverage in Malaysia, TM is deemed to benefit from this initiative as higher fiber-optic coverage will drive Unifi subscribers’ growth given that the penetration rate of Malaysia’s fixed broadband market remain low (1Q21 penetration rate: 41%). In addition, under the MyDIGITAL initiative, TM is appointed as the cloud service provider to serve the public sector to build and manage hyper-scale data centers in Malaysia, this is expected to support its cloud computing segment over the next five years.

Good proxy for upcoming window dressing. By compiling TM’s 12-year historical monthly return, 10 out of 12 times TM will register positive return in December with an average return of 5%, this may due to the window dressing activities by funds, in our view. For 2021, we do not rule out the possibilities that TM will be window dressed underpinned by (1) undemanding valuation; (2) one of KLCI component stocks; and (3) promising prospect supported by government initiative.

Building a base. Technically, any weakness from the current base building supports of RM5.38-5.50 will provide good buying opportunity in the anticipation of window dressing activities. A successful breakout above its resistance of RM5.7 0 (FR 0.236) will spur the prices toward RM5.86-RM6.00 levels. Cut lost at RM5.29.

Source: Hong Leong Investment Bank Research - 15 Nov 2021