• TM’s business outlook is stable and its expansion plans are largely intact in spite of the Covid-19 pandemic and the introduction of the Jendela Plan.
• Robust revenue and cost control supported 1H20 earnings. Operationally, we expect positive business momentum to sustain into 2H20.
• Maintain BUY. We like TM for its extensive fibre infrastructure, growing demand for fixed broadband and attractive valuation.

Business Outlook and Expansion Strategy Are Largely Intact

We have recently spoken to TM’s CFO, Mr. Razidan Ghazali and VP of Corporate Finance & IR, Mr. Delano Abdul Kadir during a virtual engagement session. We walked away feeling reassured. We gather that TM’s business outlook and expansion strategy are largely intact, and sense that the strategy from TM’s new MD / GCEO, Mr Imri Mokhtar will be unlikely to deviate substantially from TM’s current path.

Jendela Plan: No impact to fibre rollout targets, 5G plan on hold for now

Management shared that their capex and fibre rollout targets are not affected by the Jendela Plan, as the group had already drawn out a plan to increase its home passes from 4.4m in 2019 to 6.0m by end-2022 – this should assist the government in achieving their target of 7.5m home passes by end-2022 (from 4.95m currently). Elsewhere, TM is putting its 5G plan on hold for now, in line with the government’s revised deployment timeline of “beyond 2022”.

Unifi business held up well, positive momentum should sustain into 2H20

The revenue from the Unifi segment held up well in 1H20, in spite of the difficult market conditions (Covid-19 and MCO / CMCO). Moving into 2H20, we expect the positive momentum from the Unifi segment to sustain and TM Wholesale may have a bumper 4Q (seasonally stronger) on IRU sales. Nonetheless, the revenue from TM One may stay weak due to cautious business sentiment. Overall, we expect TM’s 2H20 EBITDA to mirror that of 1H but its earnings may come in weaker due to normalisation in depreciation and tax expenses.

Maintain BUY With An Unchanged DCF-derived Price Target of RM5.00

Maintain BUY. We are pleased to see that TM’s business outlook, expansion target and business strategy are largely intact. We continue to like TM for its extensive fibre infrastructure, growing demand for fixed broadband and attractive valuation of 20.6x 2021E PER, a discount to peers’ 25-32x and its 8-year average PER of 24x.

Source: Affin Hwang Research - 20 Oct 2020