KUALA LUMPUR (May 23): RHB Investment Bank Research expects a seasonally weaker quarter for Telekom Malaysia Bhd (TM), with revenue likely down 6-10% quarter-on-quarter (+1-6% year-on-year).

In a note on Monday (May 23), the research house however maintained its "buy" call on TM at RM4.90 with an unchanged target price (TP) of RM7.65.

The research house said with restrained opex, core earnings before interest, tax, depreciation and amortisation could slip by a smaller magnitude (vs revenue) while core earnings are likely to be crimped by Cukai Makmur and other one-off items.

"We see scope for further opex savings, with the group well into the second year of its three-year performance improvement programme.

"The optimisation of office space will see TM shifting most of its operations from Menara TM to TM Annexe and Cyberjaya by end-2022, which could translate into about RM100 million savings in rental and utility costs per annum.

"Management had also highlighted additional procurement savings and lower staff cost from manpower optimisation," it said.

RHB said TM's stronger revenue and earnings outlook remains intact, and it sees scope for more opex savings going into financial year 2023 (FY23).

"Retail fibre competition should be manageable in our view, buffered in part by its expanding wholesale business. Our TP builds in a 2% environmental, social and governance (ESG) premium," it said.

RHB said TM should still capture the lion's share of subscriber additions despite stronger retail fibre competition from mobile network operators, leveraging its high-speed broadband network because of its entrenched unifi branding, migration of remaining Streamyx subscribers to fibre, and the expanding fibre footprint under the JENDELA programme.

"[TM's] wholesale revenue momentum should stay robust in FY22-23, supported by the progressive recognition of the RM2 billion fibre-leasing contract with Digital Nasional Bhd and contributions from Astro, a fibre access seeker that commissioned its own broadband service in March," it said.

RHB added that TM's internet and wholesale businesses are still the bright spots, while business-to-business arm TM ONE looks patchy.

In regard to TM's new digital unit Credence, RHB saw a gestation period. It said the number of digital or enterprise mergers and acquisitions in recent years by telcos could mean more time required to identify suitable assets.

TM is actively scouting for assets, specifically in cloud computing, smart workforce, productivity and specialised industry-based solutions.

According to RHB, TM scored 2.9 out of four in the ESG grade for reducing carbon footprint with the migration of the copper network to fibre, empowering the nation's digital connectivity agenda as a government-linked company and adopting best practices for board appointments.