Investing in the future

Starting life as Malaysia’s broadcaster and fixed-line telecoms provider, TM has grown into a corporation that spans communication services, including broadband, cloud services and data centres.

In recent years, the firm has invested heavily to  upgrade fibre-optic and access networks, and installing subsea cables, aiming to improve digital connectivity within Malaysia’s borders and further afield. A notable example of this is TM being part of the consortium of the ‘SEA-ME-WE 6’ (South East Asia-Middle East-West Europe 6, or SMW6) project. This is a 21,700km long submarine cable that links Southeast Asia, the Middle East and Western Europe, with a capacity of more than 100 terabytes per second [2].

These investments were made ahead of demand. But connectivity is increasing rapidly. In 2024, Malaysia’s internet traffic reached an all-time high of 2.6 Terabits per second (Tbps) – a 17% year on year increase [3]. With the acceleration of artificial intelligence (AI) and growing demand for more sophisticated and data-hungry products and services, we are now reaching the stage where TM can monetise these assets. 

A resurgent sector

In the last decade or so, investors have generally been less keen on telecoms. Government-mandated price cuts and an increasingly competitive playing field have put pressure on revenues and share prices.

Now, with the rapid expansion of the digital economy, companies in the sector are regaining their pricing power. In part this is down to prices having come down to such low levels that consumers are now less sensitive to moderate cost increases.

What helps set TM apart from other telecoms companies is its exposure to corporations, not just consumers. These include major technology companies that are renting space in data centres and looking for partners in the region: the likes of Amazon, Google, and Microsoft. This puts TM at the heart of the ASEAN digital economy.

Malaysia is the new hub for ASEAN’s data centres

One of the key aspects of the resurgent telecommunication sector is the rising need for data centres. Here, Malaysia is emerging as a new infrastructure hub. Previously, Singapore had been the natural focus for data centres, but it has now reached saturation point. Indeed Singapore even imposed a brief moratorium on new developments in 2019. With affordable real estate, a reliable power supply and strong telecoms infrastructure, Malaysia has become the go-to destination for data centres.

There are now 107 data centres in the country. Most are located in Kuala Lumpur, Johor Bahru or Cyberjaya [4]. Since the end of 2023, tech giants Nvidia, Google, Amazon Web Services,  Microsoft, ByteDance and Oracle have invested USD23.3 billion in building data centres in Malaysia [5].  Despite US rules limiting exports of high-end computing chips, analysts still expect continued growth in data centres – albeit at a slower rate.

As well as owning and operating some of these data centres directly, TM also provides the infrastructure that carries the data, including fibre-optic and subsea cables.

Table 1: SEA-5 data centre opportunity index 2024

Source: Knight Frank, January 2025. 

Capital discipline and commitment to shareholders

When it comes to equity income, we look for companies with healthy levels of cash flow that can readily be translated into income for shareholders. While reinvesting for growth is good for companies in the long term, we also want to see a disciplined approach to capital deployment.

A company’s dividend policy can act as a guardrail for future investment decisions, providing checks and balances on overspending. If a company embarks on an ill-conceived major investment project, this can damage investor returns, including the scope for paying dividends.

With a progressive dividend policy, TM should provide an annual pay-out of 40–60% of its profit after tax and non-controlling interest over the next three years [6].  And at the same time capital discipline is maintained, with the company’s most recent guidance indicating a 14–16% capital spending/revenue ratio [7].  

Leveraging local presence and knowledge 

When it comes to finding the best equity income opportunities, there is more to consider than just financial metrics matter. In this respect, having local presence can be helpful. And this very much is the case for Aberdeen Investments’ whose presence in Malaysia dates back to 2005, when foreign fund managers were permitted to set up 100% foreign owned operations to cater for institutional investors in the country [8].

Being in Malaysia has certainly helped to build a higher degree of confidence regarding our investments in the country. Beyond directly engaging with TM management, our analysts have engaged with related industry players, such as Gamuda, a contractor that builds data centres across the country, including a new hyperscale centre near Kuala Lumpur for Google. Such indirect insights have reinforced our view of Malaysia as a new data-centre hub. 

Malaysia’s economic renaissance

Conclusion – follow the cash flow

Telekom Malaysia is a stock held in our EM income strategy as of 03 June 2025. 

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.