TM’s operating costs reduced during MCO


TELEKOM Malaysia Bhd (TM) benefitted from the Movement Control Order (MCO) in April and May this year by reducing its operating costs namely customer acquisition, marketing, and installation and maintenance, AmInvestment Bank Bhd noted in a research report.

Its analyst Alex Goh said the company’s management expects its marketing costs for the second half of 2020 (2H20) to move in tandem with revenue trajectory, while manpower costs that accounted for 23% of 1H20 revenue is expected to decline from natural attrition and redeployment.

The firm maintained its ‘Buy’ call on TM with an unchanged discounted cashflow-based fair value of RM5.05 per share based on its weighted average cost of capital of 7.4% and terminal growth rate of 2%.

It also maintained the company’s financial year 2020 (FY20) to FY22 earnings, which are 15% to 17% above consensus following a virtual engagement session with TM’s management on Monday.

“Amid the rising Covid-19 cases nationally, TM has activated its crisis management response with business continuing as usual together with work-from-home arrangements.

“To date, TM has cleared the backlogs in fibre wiring installations that occurred during the April-May travel restrictions,” said Goh.

He said the group has also not experienced any operational disruptions except for some service centres in malls or selected areas under the current stricter movement restrictions.

The firm, however, is cautious on the “viral resurgence” which led to additional movement restrictions in East Malaysia, Kedah, Putrajaya, Kuala Lumpur and Selangor.

The management also remains committed to TM’s performance improvement programme, which is expected to reduce its operating expenditure by RM500 million, or up to RM600 million, over five years.

Goh said the government’s Jalinan Digital Negara infrastructure — which deferred the start of 5G to 2023 with copper-based connectivity being phased out by 2025 — will likely mitigate substantive capital expenditure (capex) increases as the programme over the next two years will be focused on expanding 4G coverage from the current five million premises to 7.5 million premises.

“Additionally, as TM has already incorporated accelerated depreciation of RM150 million per year (6% of FY20 depreciation) for its copper infrastructure since late last year, management does not expect any significant impairment impact going forward,” said Goh.

He added that the group aims to cushion the industry-wide pressure on average revenue per user by offering better quality services via bundling of quad-play services, additional virtual marketing options for small and medium enterprises and customer care improvement.

TM is also expecting to secure sales of indefeasible rights of use of submarine connectivity in November and December, which are likely to drive a strong bottom line in its fourth quarter of the year.

“Management reaffirmed that while TM was revisiting its 2020 guidance, the group has not withdrawn its expectations for a low- to single-digit revenue decline, Ebit of over RM1 billion and capex of low-mid 20% of revenue.

“Additionally, its 1H20 dividend payout of 60% could be sustained in 2H20 on the current earnings trajectory,” said Goh.