Highlights

• We came away from a recent management meeting more sanguine on TM’s near-term prospects. 2027 earnings will be driven by: a) the absence of one-off manpower VSS cost, b) RM100m-150m in savings from 5G wholesale fees, and c) a strong TM Global project pipeline, including built-up DCs. 
   
• The TM-Nxera 200MW fit-out is expected to start soon, and we value this DC project at RM1.30/share. By 2030, TM aims to build out 1GW of DC capacity, beyond the Johor cluster as demand moves into the Klang Valley/East Coast region. TM is also set to benefit from Malaysia’s sovereign cloud ambition.
   
• Upgrade from HOLD to BUY with a higher DCF-based target price of RM8.60, capturing TM-Nxera’s full valuation. Active capital management will provide a total shareholder return of 15%. 
   

Analysis

• On stronger footing in 2027. We came away from a recent management meeting more sanguine on Telekom Malaysia’s (TM) near-term prospects. We believe the group can achieve a robust 15% yoy earnings growth in 2027, on the back of a 1.5ppt EBITDA margin uplift to 3.5.5%. This reflects: a) the absence of the voluntary separation scheme (VSS) costs – the programme was launched in 2025; b) RM100m-150m in savings from 5G wholesale fees, given that TM has moved to U Mobile’s pay-per-use 5G wholesale contract as of 31 Jul 26; and c) a strong TM Global project pipeline, with submarine cable and data centres (DC) operating at close to full capacity. 
   
• Robust underlying TM Global expansion. In 1H26, TM Global’s revenue rose the fastest, expanding 7% yoy to RM1.6b and accounting for 27% of group revenue. Key drivers included demand for DC capacity, international data and 5G backhaul services. We understand that TM will focus on two segments of expansion within the infrastructure business: a) DC – likely focusing in areas outside of the Johor cluster; and b) 10 submarine cables in the next two years.