TM - Smooth state of affair

Telekom Malaysia (“TM”) is tentatively scheduled to announce its 1Q12 result on 30 May. We expect that the group could potentially surpass our 1Q12 forecast, where we are targeting a revenue of RM2.34b (+8.8% YoY) with a net profit of RM137m (+12.3% YoY), judging from the higher than expected take-up rate in its Unifi product and healthier growth in its wholesale and global segments. TM’s share price has continued to outperform the market since 2H11, thanks to its capital management initiative. With the capital management initiative perception likely to continue due to its strong retained earnings, we expect the group’s share price to remain firm, barring unforeseen circumstances. We are keeping our OUTPERFORM call and FY12-FY14 earnings forecasts at this juncture pending its upcoming 1Q12 result. Our current target price for TM is RM5.52, based on a targeted FY12 EV/forward EBITDA ratio of 7.0x. 

1Q12 result could potentially surpass our initial forecast. We expect TM to record RM2.34b (+8.8% YoY) turnover with a net profit of RM137m (12.3% YoY) in 1Q12, underpinned by a higher retail segment contribution as a result of a strong Unifi take-up rate. The company’s Unifi growth momentum does not appear to be slowing with about 347k sign-ups as of 7 May, representing a strong take-up rate of 29% (1.2m premises passed to date). The latest subscribers’ number showed a strong improvement since our last update number, which stood at 305k then with a take-up rate of 26% as of 18 March. The Unifi subscriber number has continued to exceed our forecast as we only have a 291k and 345k target respectively as of 1Q12 and 2Q12. Hence, we see an upside revision in our numbers. 

Aiming to become a regional ICT and BPO powerhouse. The recent opening of its first regional data centre facility  in Hong Kong marked the expansion of TM’s ICT and BPO (Business Process Outsourcing) footprint outside Malaysia. With the already existing 14 data centres in Malaysia established by TM’s ICT arm, VADS Bhd, couple with  the continued leveraging of its infrastructure and collective expertise, the group is targeting to become a leading player in the communications industry.

Final dividend and proposed capital repayment have  approved during the company’s AGM and EGM held on Tuesday. TM’s shareholders at the above meetings have voted in favour of all the  resolutions proposed, which include the final single tier dividend of 9.8 sen per share and capital repayment of RM1.07b (or 30.0 sen per share). Post EGM, we understand that the proposed capital repayment is still subject to the approval/consent from the High Court and TM’s creditors/lenders. The final dividend is scheduled to goes ex-entitlement on 22 May while the capital repayment is expected to be completed in 3Q12.   

TM’s retained earnings remains strong at RM2.0b even after it recent announced final dividend of 9.8 sen and its RM1.07b proposed capital repayment plan. The group has reiterated its commitment to return excess cash to shareholders should there be no additional  capex required by the company. In view of its declining capex trend (which we forecast at RM2.6b, RM2.3b and RM1.8b for FY12, FY13 and FY14 respectively), we believe TM is well capable to further reward shareholders on top of its total regular annual dividend of 19.6 sen (based on its dividend policy of a minimum RM700m or up to 90% of its normalised net profits, whichever is higher). We are keeping our FY12 dividend forecast of 49.6 sen unchanged.   

Source: Kenanga