• TM is well positioned to capitalise on the growth of the data centre and 5G rollout, leveraging its strong presence in fibre interconnectivity
• We see continued earnings growth, backed by a digital infrastructure boom alongside the group's effective cost-down initiatives
• Initiate with a BUY rating with a 12-month target price of RM8.35. With an extensive network and attractive valuation at 14x 2025E PE, TM is our sector top pick

Riding the proliferation of data centres

We believe TM is poised to benefit from the rapid growth in the data centre through its extensive domestic fibre and submarine cable infrastructures. In addition, the group plans to develop a 64MW artificial intelligence greenfield data centre in Johor, through a JV with Nxera, a unit of Singtel, with operation targeted to begin in 2026. We are positive about this landmark venture as TM capitalises on the growing data center trend, leveraging its network infrastructure. We estimate this DC JV could potentially contribute RM90-110m once operating at full capacity.

5G will continue to bolster its growth

While ARPU in the Unifi broadband segment has faced pressure due to promotional pricing and entry-level packages, TM's bundling strategy ensures customer retention and upsell opportunities. Additionally, the full rollout of 5G provides TM's Unifi mobile with significant room to upsell higher-value postpaid plans, supporting further subscriber growth. TM's focus on integrated digital solutions and expanding international connectivity cements its role as a key player in Malaysia's digital transformation. We expect TM Unifi and TM Global to be TM's main growth drivers in 2024-26E, driven by steady subscriber growth in fixed broadband and mobile segments and increasing demand for fibre leasing services.

Initiate with BUY with TP of RM8.35

We initiate coverage on TM with a BUY rating and a 12-month target price of RM8.35, derived using a DCF valuation method (9.6% WACC). TM is our preferred sector pick for its extensive fibre network, submarine infrastructure, and attractive valuation of 14x 2025E PER, as compared to peers' at 19-22x. TM also offers a compelling growth story, being part of the nation's digital transformation landscape and burgeoning data centre demand. Key downside risks to our call include regulatory changes, slower-than-expected demand for DC interconnectivity, and intensified competition in fibre broadband.

Source: Philip Capital Research - 27 Jan 2025