Thursday, March 29, 2012

TM ... Mar12

The main thing supporting TM’s share price since the de merger with Axiata Group was its promise to pay at least rm700 million in dividend annually, or up to 90% of its normalized net profits. However there are concerns of TM’s fledging fixed line voice business and the huge upfront investments needed for its HSBB business where the take up was highly uncertain. All that looks set to change in 2012. For the one, the take up for TM’s HSBB service, UnFi is coming in stronger than expected.

Since its launch in March 24, 2010, TM already has over 300000 UniFi customers. At current rate of 1000 installations per day, TM could achieve its target of 400000 Unifi customers by July 2012.

More importantly, there is a chance of TM’s normalized net profits could exceed rm700 million in 2012. This means current dividend ceiling looks set to exceed the current minimum dividend payout of rm700 million as early as 2012 if not in 2013.

And TM has promised to pay the higher number if 90% of normalized profit after tax and minority interest is more than rm700 million.

While business looks good, it would still be a challenge for TM to keep its cash generation as well as profit figures in 2012 because the group does not have significant non core assets to sell and the rm2.4 billion in HSBB grant from the government will be fully used up in 2012. Less in rm200 million in HSBB government subsidy left in the coffer for 2012 and HSBB related capex is expected to be between rm1.3 billion and rm1.5 billion for 2012 before tapering off in 2013. It needs to bolster the group’s capabilities to better to serve its SME customers going forward.

TM’s capex (HSBB and business as usual) the past two years was lower at rm1.81 billion in FY2011 and rm2.2 billion in FY2010 helped by some rm754 million HSBB grant from the government in FY2011 and rm513 million in FY2010. Its business as usual capex was rm1.13 billion in FY2010 and FY2012 which brought total capex to rm2.71 billion in FY2010 and rm2.56 billion in FY2011.

Market observers stated that TM’s total capex in 2012 to largely the same as the previous two years (rm2.71 billion and 2.56 billon) with the key difference being the lower level of HSBB government grant. The good news is that from 2013, TM is no longer obligated to roll out HSBB network to places it deems commercially unfeasible. From 2013, it would be demand driven basis.

TM’s HSBB sealed a wholesale agreements with Maxis, Celcom, Axiata and Packet One and Redtone, which gives rivals access to its network

TM’s cash and cash equivalent stood at rm4.21 billion as at end 2011.

Going forward, it will consider acquisitions to bolster its capabilities to better serve its SME customers.

SME contributed 26% of TM’s retail revenue if rm7.2 billion in FY2011, the second largest contributor after the consumer segment’s 34% and ahead of contributions from the enterprise and government business segments at 20% each.

TM is also looking to expand in the business process outsourcing market.

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