Telecommunications Weekly Review: 10th – 16th November 2008
• TM’s 3QFY08 hit by exceptionals
TM’s 3QFY08 results overall were not very encouraging, as TM’s profitability declined y-o-y. On a y-o-y basis, 3QFY08 revenue dipped – 3.1% to RM2.06bn, while recording a net loss of RM165.6m (-148.6%).
The net losses were mainly due to exceptional items comprised mainly of prior year volume commitment settlement (RM50.3m), disposal of Sotelgui (RM88.8m) and unrealised forex losses on its US$1.1bn bond
Despite a weak quarter, TM’s cash flow is likely to remain intact as most of these exceptional items, particularly the unrealised forex losses do not directly affect TM’s cash flows. Operationally for 3QFY08, TM’s broadband revenue continued to exhibit strong growth at RM390m (+24.2 y-o-y). However, lower voice usage and a shrinking fixed line subscriber base caused voice revenue to decline to RM887m (-8.8% y-o-y). Data revenue also decreased -11.5% y-o-y to RM170m.
• Can TM sustain its dividends?
Of greater concern is whether TM can sustain its dividend payouts going forward, which we believe is achievable at least until 2014. During the 3QFY08 conference call, TM did not reiterate its dividend policy of RM700m or 90% of normalized PATMI beyond FY08. Management only said “excess cash” would be returned to shareholders.
This comes as a concern due to the high capex of up to RM2.3bn p.a. for the next 3 years due to its high-speed broadband (HSBB) roll out and maintenance capex. With an estimated RM2bn annual operating cash flow going forward and financing costs and tax not yet accounted for, it is not surprising doubts arose on the sustainability of its dividend policy. While the RM4.0bn due from TMI in April 2009 can tide TM over momentarily, we believe TM can only do so until 2014. This is despite
taking into account the RM2.4bn HSBB co-investment by the government which would ease some of the strain on TM’s operating cash flow only from FY09 to FY11.
This brings us to the matter of whether TMI can fulfil its RM4.0bn obligation to TM. With only a cash balance of RM2.6bn as at 2QFY08, TMI would most probably refinance its debt due to TM to meet its
obligation. Khazanah, the controlling shareholder of TMI and TM, has come out to say that it will be part of the long term funding solution but it is not yet clear how the funding will be structured. In sum, we believe TMI will be able to meet its obligation.
• MAINTAIN NEUTRAL on the sector
TM bashed down. TM’s share price dropped to an intra-day historical low RM2.54 Thursday on continued concerns about its dividend policy following Wednesday’s earnings conference call. After the morning conference call, investors began selling down TM shares upon worries that TM will not uphold its dividend policy of RM700m or 90% of PATMI, whichever is higher. The main source of the concern was management’s evasiveness in reaffirming its dividend policy upon being asked on how TM would pay dividends amid high capex requirements. A statement issued by in the afternoon TM did little to boost sentiment as TM merely said it would return excess cash to shareholders. Only when TM released another statement on Thursday afternoon did TM’s share price recover from its historical intra day
low. The share price continued to recover on Friday, we believe, due to dividend yields becoming attractive upon reassurance that TM’s dividend policy remained unchanged into FY09 and going forward.