MIDF positive on TM’s fibre leasing deal

Research house favours TM as it is poised to benefit from the pandemic-fuelled fibre broadband adoption 

By S BIRRUNTHA / Pic TMR

MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) said it is positive on Telekom Malaysia Bhd’s (TM) term sheet agreement with Digital Nasional Bhd (DNB) for the fibre leasing service with a total contract value of RM2 billion over 10 years. 

The research house noted that the proposed services to DNB, as stipulated in the term sheet, are expected to contribute positively to the future earnings of TM Group in the long run. 

“The term sheet shall not have any material effect on the earnings and net assets of the TM Group for the financial year ending Dec 31, 2021. 

“At the moment, pending more details, we do not make any changes to our earnings estimate and maintain our target price of RM6.91 premised on dividend dis- count model valuation methodology with weighted average cost of capital of 6.7%,” it said in a recent note. 

MIDF Research has maintained its “Buy” call on TM with an unchanged target price of RM6.91, implying expected total return of +34.4%. 

The research house added that it likes TM as it is poised to benefit from the pandemic-fuelled fibre broadband adoption alongside 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,” it said. 

On Dec 16, TM inked a term sheet with DNB for the Fibre Leasing Service with a total contract value of RM2 billion over 10 years to speed up the deployment of the government-owned 5G network nationwide. 

DNB plans to subscribe to 5G RAN-to-Edge Fronthaul and Backhaul as a single end-to-end solution for the provision of fibre connectivity. 

This will allow DNB to provide 5G service to their customers while TM will serve DNB’s 5G infrastructure needs in supporting the government’s aspiration to speed up 5G rollout in Malaysia. 

According to MIDF Research, the term sheet portrays TM’s effort to provide an integrated telco offering as DNB’s Network Partner in supporting the government’s aspiration to speed up 5G rollout in Malaysia. 

“Additionally, it also strengthens TM’s strong advocate of infrastructure sharing particularly in providing connectivity services and end-to-end solutions to enable the rollout of 4G services by mobile operators and 5G services by DNB,” it noted. 

The research house said it foresees no other significant risks associated with the execution of the term sheet except for the operational and execution risks associated with the implementation of the services. 

TM is expected to provide 5G fibre leasing services for connectivity between DNB’s 5G mobile sites and nodes, leveraging TM’s domestic fibre cable network spanning over 640,000km across Malaysia. 

The telecommunication group noted that the term sheet signed shall take effect from Aug 28, 2021 and remain valid and effective until the expiry of the 10 years’ service term of the last commissioned cell site. 

TM also expects the proposed services to DNB, as stipulated in the term sheet, to contribute positively to its future earnings. 

Prior to this, TM, along with other fibre providers in Malaysia, had participated in the 5G Fibre Leasing Request for Quotation exercise conducted by DNB in June 2021. 

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MIDF positive on TM’s fibre leasing deal