Friday, August 26, 2011

TM commits to returning excess cash, sees jump in UniFi take-up

Tags: First half results | Telekom Malaysia Bhd | Zamzamzairani Mohd Isa
Written by Cindy Yeap   
Thursday, 25 August 2011 13:55

KUALA LUMPUR: Telekom Malaysia Bhd (TM) announced an average interim dividend with its 1HFY11 earnings release yesterday, but group CEO Datuk Zamzamzairani Mohd Isa promised the company will return any excess cash it has after assessing its needs.

“It’s expensive to keep extra cash. We’ve always said we would return any extra,” Zamzamzairani told The Edge Financial Daily on the sidelines of its earnings briefing. “Active capital management will continue,” he told reporters earlier.

Expectations TM would make a special payout rose after the company fattened its coffers by some RM468.3 million (about 13 sen per share) last month with proceeds from the sale of its remaining stake in Axiata Group Bhd.

TM’s cash pile stood at RM2.7 billion as at June 30, 2011, down from RM3.5 billion at end-2010, having just made a RM1.04 billion (29 sen per share) capital distribution in May. 

That was on top of the 26.1 sen per share dividend (13 sen interim and 13.1 sen final) paid for FY10. In FY09, TM made a 98 sen per share capital repayment, on top of 23 sen in regular dividends (10 sen interim and 13 sen final)

Analysts are forecasting dividend per share to be between 20 sen and 49 sen for FY11, averaging at 26.5 sen per share. TM has a policy of distributing at least RM700 million cash back to shareholders a year, or up to 90% of its normalised profits, whichever is higher.

TM announced an interim dividend of 9.8 sen per share yesterday, which represents a RM350.6 million payout. This was after saying earnings for 1HFY11 ended June 30 fell 18.5% to RM311.7 million from RM382.4 million in 1HFY10, even as revenue rose 2.5% to RM4.38 billion over the same period, shored up by higher revenue from Internet, multimedia and data services.

Take-up of the UniFi service has exceeded TM's expectations.
The reduced bottom line is primarily due to higher operating costs and lower foreign exchange gains on translation of foreign currency borrowings, which fell to only RM49.5 million in the current period against RM180.5 million in the same period last year. 

Net profit of RM137 million in 2QFY11 was smaller than the RM174.7 million booked in 1QFY11, but 4.2% above the RM131.5 million booked in 2QFY10.
Excluding non-operational items like translation gains, 2Q earnings would have increased by 20.8% year-on-year and be up by 10.4% quarter-on-quarter, TM said.

“Overall, we’re very pleased with the performance, which shows continued operational improvement,” Zamzamzairani said, adding that strong demand for its UniFi high-speed broadband (HSBB) service “has exceeded expectations and the momentum we saw at the beginning of the year”.

UniFi’s subscriber base jumped from 63,541 in 1Q11 to 109,019 in 2Q11 on the back of 904,000 premises passed. As at Aug 18, TM has installed UniFi to more than 142,000 customers on the back of more than 973,000 premises passed covering 76 exchange areas with 46 IPTV channels. “This shows a ramping up of the take-up rate from 12% as at June 30 to 14% to date, exceeding our initial expectations of 8% to 10% take-up for the first two years, Zamzamzairani said.

TM is on-track with its plan to cover 1.1 million premises by end-2011 and 1.3 million premises by end-2012, it said.  

While capital expenditure to revenue ratio improved from 18.8% to 17.1% in 1HFY11, with total capex falling from RM804 million in 1HFY10 to RM749 million in 1HFY11, group CFO Datuk Bazlan Osman said capex on HSBB is likely to be higher in 2HFY11. “Overall capex was about RM1.6 billion last year. This year’s capex will be about the same, if not slightly higher,” he said.

Foreseeing a challenging outlook ahead, Zamzamzairani said TM will continue to spend where necessary while keeping a tight watch on costs. “We hope the momentum of revenue growth we are seeing will continue,” he said.

Based on its headline KPI guidance for FY11, TM is expecting 2.5% revenue growth this year against 2.1% in FY10, with momentum picking up further to 3.5% to 4.5% in FY13. Guidance on earnings before interest, tax, depreciation and amortisation (Ebitda) margins, however, is at 32% for FY11 against 33.1% in FY10, before rising to the “mid-30s” in FY13. 

TM rose eight sen or 1.95% to RM4.18 yesterday, after trading between RM4.11 and RM4.18.

At press time, it had nine brokers calling it a “buy” against 13 “holds” and seven “sells”. Target prices range between KAF Seagroatt & Campbell’s RM3.23 and CIMB Research’s RM4.92.

This article appeared in The Edge Financial Daily, August 25, 2011.