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3 Key Investing Things to Know About Telekom Malaysia Berhad

Telekom Malaysia Berhad (KLSE: 4863.KL) is the largest provider of broadband services in Malaysia.

In Singapore, telecommunications companies, such as Singapore Telecommunications Limited (SGX: Z74) and StarHub Ltd (SGX: CC3), provide the full range of telecommunications services including fixed-line, mobile, internet and pay-TV.

But, Telekom Malaysia is somewhat different as it only provides fixed line, internet, data, and multimedia services. The company does not have mobile services for the public.

The reason for this was a demerger of Telekom Malaysia and Axiata Group Berhad (KLSE: 6888.KL) back in 2008. Axiata Group now focuses on mobile services and other international businesses while Telekom Malaysia’s spotlight is on the telecommunications sector (except for mobile) in Malaysia.

Over the past five years, Telekom Malaysia has generated a very respectable total return (with gains from reinvested dividends included) of 130%. Here are three important things investors need to know about Telekom Malaysia’s business.

A constituent of the KLCI

Telekom Malaysia is a key constituent of the Kuala Lumpur Composite Index (KLCI), Malaysia’s main stock market barometer. The company has a market capitalization of RM24.5 billion (S$8.2 billion) and is a key investment for the Malaysia government’s investing arm, Khazanah Nasional Bhd.

Important shifts in its business landscape

Traditionally a fixed line voice service provider, Telekom Malaysia is now in the process of changing into an internet and data service provider. Although voice services still makes up a significant portion of Telekom Malaysia’s total revenue at the moment – 30.9% in 2014 – its contribution has been declining and offset by the growth in the company’s internet and data services.

In 2014, internet, multimedia, and data services collectively accounted for nearly half of Telekom Malaysia’s revenue in 2014. Their slice of the pie is still growing.

Valuation

Telekom Malaysia carries high valuations at the moment. At its current share price of RM6.54, the company trades at 35 times trailing earnings. In comparison, Singapore’s largest telco, Singtel, has a price-to-earnings ratio of merely 16.

But, given that the broadband customer base of Telekom Malaysia was only at 2.2 million in 2014 in a country (Malaysia) with more than 6 million households, there appears to be plenty of room for growth for the company in the coming years. Though, whether that growth is enough to meet the firm’s high valuation is yet to be seen.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.