Our target price for Telekom Malaysia is RM8.22. Our fair value is based on a sum-of-the-parts (SOTP) of its fixed network business using a FY24E DCF on a WACC of 9.3% (RFR of 4.2% and 1.2 beta) and the potential valuation of its joint venture data center at a 20x EV/EBITDA valuation on  200MW capacity. We have reflected our mid-case valuation scenario for TM’s 51% stake in the DC as part of our TP.  This assumes a 20% revenue/MW discount to Singapore and 40% EBITDA margin (vs 60% for Singapore) at the 200MW capacity. At our target price, TM shares would trade at 21x FY25E PER and 7x EV/EBITDA.

Downside risks that could impede the stock from reaching our target price include: a) unfavorable future reviews of MSAP that entail significant wholesale pricing cuts; b) lower-than-expected revenues generated from 5G fiberization projects; and c) cost pressures from new business startups and/or rising device costs driving lower-than-expected EBITDA margins.