KUALA LUMPUR (March 9): Telekom Malaysia Bhd (KL:TM) may be locked into its agreement with Digital Nasional Bhd (DNB) for another year, potentially forcing it to forgo RM127 million in unutilised prepaid capacity, according to RHB Investment Bank.

In a note on Monday, the research house stated that if access seekers are unable to successfully terminate the current agreement, TM "may need to continue the existing arrangement with DNB for another year (financial year ending Dec 31, 2027) with January 2028 being the long stop date for access seekers to terminate (by six years after the access agreement is inked)".

This would result in the RM127 million in prepaid capacity being foregone, it added.

"The RM127 million in unutilised prepaid capacity for DNB would have to be foregone. In addition to accessing a newer 5G stand-alone network, the 5G multi-operator core network (MOCN) deal with UM [U Mobile] should yield good savings in direct cost for TM, which saw a spike in FY2025 due to the shift to a fixed 5G access payment," said RHB.

The house cited TM, which asserted it has fully complied with the legal provisions and terms governing the termination of the wholesale access agreement with DNB, which allows access seekers to terminate the agreement within 30 days of the release of a reference access offer (RAO) by another access provider.

RHB said that TM is considering revising its dividend policy by growing its dividend progressively with a special dividend to supplement the ordinary payouts.

The revised policy is expected to be introduced in May, said the house.

RHB said TM intends to strengthen its balance sheet to fund its capital expenditure in the future while dividends are to be distributed from strong operating cash flows.

The telco provider's current net debt/Ebitda stands at a record low of 0.4 times.

“We believe TM’s capex intensity could remain elevated in the medium term due to investments in new subsea cables to replace ageing cables and network modernisation.”

In terms of its core business, the research house projected the business-to-consumer segments which provide Unifi Business to continue growing at low single digits supported by converged offerings.

Meanwhile, the wholesale segment, which includes TM Global, is expected to sustain high-single-digit growth, supported by additional subsea cable capacity coming onstream.

For the enterprise segment (TM One), RHB is optimistic about the segment following the change of leadership in the segment with price-downs from contract renewal largely behind.

The analyst has slightly revised TM’s FY2026 forecast but raised its core earnings projections for FY2027 and FY2028, factoring lower financing and manpower costs as well as stronger data centre growth. It also upgraded its dividend expectations to reflect the stronger capital management.

The research house maintained its 'buy' call on TM, with a target price of RM9.30, a 24% upside from RM8.90, citing a strong FY2027 from manpower cost savings, higher data centre contributions and growth prospects from its core business.