TM has secured a RM1.25b contract from the government to implement the Next Generation Emergency Services 999 (NG999) strategic digital platform for 12 years until 2036. It is a continuation of the existing Malaysia Emergency Response Services 999 (MERS999), which integrated all emergency numbers with a single number ‘999’. We maintain our forecasts, TP of RM7.53 and OUTPERFORM call.

Redialling 999. The more advanced NG999 will replace MERS999 to enhance efficiency and response time. To recap, the 999 number is for the public to call during emergencies and access services offered by five key emergency agencies, including: (i) Polis DiRaja Malaysia, (ii) Kementerian Kesihatan, (iii) Jabatan Bomba dan Penyelamat Malaysia, (iv) Agensi Penguatkuasaan Maritim Malaysia, and (v) Angkatan Pertahanan Awam Malaysia.

Connecting the public with help in emergencies. The contract’s job scope consists of: (i) call management services, (ii) infrastructure and platform services, (iii) connectivity services, (iv) NG999 support services, (v) NG999 continuous improvement, and (vi) other NG999 added services upon the government’s request. The NG999 platform also integrates response centres operated by TM with the control and operation centres of the emergency agencies.

Neutral due to marginal contribution. We are neutral on this announcement, as we have earlier assumed that TM will secure an extension for this existing contract. Based on our estimates, this contract will contribute 0.3% and 1.4% to FY24F and FY25F earnings, respectively.

Forecasts. Maintained.

Valuations. We also keep our TP of RM7.53 based on 7.0x FY25F EV/EBITDA. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see Page 3).

Investment case. We like TM on account of: (i) it being leveraged towards secular data growth on the back of current trends such as digital transformation, proliferation of internet of things (IoT), cloud-based applications powered by generative AI, etc, (ii) it benefitting from JENDELA phase 2 projects via roll-out and monetization opportunities, (iii) earnings accretion from new DC business, and (iv) higher demand for data transmission via its network of digital infrastructure that includes submarine cables and landings as well as fiber optics backhaul. Maintain OUTPERFORM.

Risks to our call include: (i) cost drag from Unifi Mobile due to lack o scale, (ii) pricing pressures at the retail segment arising from policy-led directives, and (iii) irrational competition in the retail fiber broadband space.

Source: Kenanga Research - 2 Jul 2024