KUALA LUMPUR: Maybank Investment Bank Research remains upbeat on Telekom Malaysia (TM) as fixed broadband adoption continues to climb and it is keeping a Buy call with a target price of RM7.40.

       In its research note on Monday, it said the underperformance of fixed-line stocks relative to mobile stocks in the past week appears unjustified in its view.

       “Earnings of fixed-line players are more distributed across multiple operating entities, and are thus less impacted from the prosperity tax.

       “Fibre-related metrics continue to trend positively, thus TM could potentially report strong 3Q21 results in our view,” it said.

       Maybank Research also commented on Budget 2022’s prosperity tax which proposed for chargeable income for FY22 beyond the first RM100mil to be subjected to 33% income tax rate.

       It raised the question that the earnings impact to companies is not clear-cut since taxes are levied at individual operating entities.

       “Overall, we view fixed-line players as being less impacted relative to mobile players, given earnings are more distributed across multiple operating entities. TM has more than 20 entities across four operating segments. We estimate a potential FY22 impact of c.6%,” it said.

       Maybank Research said fixed broadband penetration stood at 45% in June-2021, an all-time high and rising.

       “We estimate the standalone fibre broadband penetration at c.34%. Premises passed for fibre totalled 6.05 million at June-2021 (conversion rate of c.45%) and have since increased to 6.43 million at September-2021.

       “TM commanded c.75% share of fibre broadband subscribers in June-2021,” it said.

       The research house said with Time dotcom possibly impacted by stricter high-rise movement restrictions in 3Q21, it thinks TM could gain market share in the quarter.

       “Our earnings forecasts and MYR7.40 TP (DCF-based assuming 7.5% WACC and 2% growth) are unchanged. We view TM’s recent share price weakness as being unjustified.

       “Risk-reward has become more compelling in our view, with TM being a beneficiary of both the work-from-home and 5G-deployment themes,” it said.