A number of analysts have recently turned more positive on their rating for Telekom Malaysia Bhd (TM). And the recent announcement by the government on the one-off prosperity tax has not changed their view.
Budget 2022 has introduced this tax on companies that make more than RM100mil in profit for the year of assessment 2022. Kenanga Research reckons that the one off prosperity tax is likely to reduce TM ‘s earnings per share by 9%, resulting in its dividend per share to drop from 17.5 sen to 17 sen.
The research house says that the one-off prosperity tax in financial year 2022 does not impact its assessment of TM‘s 10-year discounted cash flow and enterprise value and earnings before tax, interest, depreciation and amortisation valuations.
“In our view, any fundamental impact from Budget 2022 measures will be muted,’’ Kenanga Research says.
TM pays about 40%-60% of its net profit in dividends each year. Last year it paid out RM539mil in dividends or 14.3 sen per share.
TM group chief executive officer Imri Mokhtar says its dividend policy remains intact.
“Moving forward, the dividend payout policy will be reflective of our investments for growth,’’ he adds.
Imri points out that over the past decade, TM has paid out RM6.7bil in dividends to shareholders and that 60% of its shareholders are institutional investors.
Several broking houses are excited about TM‘s growth prospects given its fixed broadband business and they believe 5G holds a lot of promise for this telco. Many have maintained a “buy’’ call on the stock.
“We continue to favour TM as we think they will continue to benefit from having the necessary infrastructure and assets for 5G and, greater home fibre adoption,’’ says Kenanga.
MIDF Research notes that TM is poised to benefit from the rise in fibre broadband adoption alongside it being the nation’s main fixed line player.
“We believe that the group’s revenue growth, across its main revenue clusters namely Unifi, TM One and TM Wholesale will remain intact. Hence, we maintain our ‘buy’ recommendation on TM with an unchanged target price of RM6.91 a share, implying expected total return of +21.12%,’’ MIDF says.
Imri points out that TM Unifi, which sells connectivity to homes and SMEs, contributes over 44% towards TM‘s income, followed by TM One, which services corporates and government and has data centres and cloud services (32%), and 21% comes from TM Wholesale (which leases out its fibre, data centres and cloud services to others).
“Over the next three years we expect the mix to remain the same but the size of each business will grow,’’ Imri says.
He adds that TM is undergoing a transformation that is necessary to address the new opportunities in the marketplace.
However, over the past three years, there had been a decline in TM‘s after tax profit.
“But we have addressed and stopped the decline in the first half of this year. We turned around, and revenue grew by 8% from a year ago.
“We think that is a commendable achievement with net profit increasing by 27%. That gives us the trajectory (to move ahead),’’ he says.
For the first half ended June 30, 2021, TM turned in RM5.5bil in revenue from RM5.1bil a year ago, with a net profit of RM544mil from RM427mil previously.
The average revenue per user (arpu) for TM Unifi dipped to RM141 for the second quarter of 2021 from RM150 a year ago. However, its fixed broadband customers grew from 2.2 million to 2.5 million. As at end September 2021 it grew to 2.8 million.
“Telcos will likely see fixed arpu dilution moving forward, as their continued expansion into the mass market will outweigh any arpu gains from package upgrades,’’ Kenanga points out.
The industry regulator also indicated that they think fixed broadband prices in Malaysia are affordable relative to regional peers, thus reducing price downside risks to wholesale provider, TM, Kenanga adds.
For this year, the consensus net profit forecast for TM is RM1.14bil. For the financial year 2022 and 2023, it is RM1.23bil and RM1.32bil.