PETALING JAYA: Telekom Malaysia Bhd’s (TM) fortunes seem to be changing, with its shares having doubled since they tanked in the middle of last year.
In yesterday’s trading, the shares closed at RM4.15, up 10 sen, but off its day’s high of RM4.26 a share. The rally in the past few days has pushed its market capitalisation to RM15.6bil.
The better financial results in the first quarter (1Q19) had some bearing, as did the appointment of a permanent managing director/CEO in the form of Datuk Noor Kamarul Anuar Nuruddin after a year of two acting CEOs.In the middle of last year, TM’s share price fell to a low of RM2.11 a share, shedding billions of ringgit in market capitalisation over issues of pricing, competition and leadership uncertainties. This also resulted in TM being excluded from the FBM KLCI component stock grouping on Bursa Malaysia at the end of the year.There have been changes in TM of late and investor appetite in the stock has gained traction. The share price has gained momentum, but now, many are beginning to wonder if it has gone beyond its fundamentals.Going by yesterday’s stock price closing, it is certainly higher than the 12-month analyst consensus target price of RM3.80 a share compiled by Bloomberg.
AmInvestment Bank downgraded the stock from a “buy’’ to a “hold”, with an unchanged forecast and a discounted cashflow-based fair value of RM4.08 a share.
The research house said the share price had surged 50% to its net fair value since being upgraded on May 30, 2019. That was led by TM’s strong 1Q19 results, which were driven by a surprisingly sharp 18% year-on-year (y-o-y) drop in operating cost.
TM had undertaken a transformative performance improvement programme since mid-2018 that has led to cost optimisation in contract renegotiations, marketing, business procurement, manpower and unifi mobile’s domestic roaming operations.“While management indicated no significant 1Q19 writebacks for the cost provisions incurred last year, we remain wary of seasonally higher cost expenditures towards the second half of financial year 2019 (FY19). We highlight that the group’s 1Q19 capital expenditure, which halved y-o-y to RM151mil, accounted for only 5.4% of revenue versus management’s FY19F guidance of 18%,’’ the research house said.It believed that the agenda to implement cost efficiency initiatives remains key to TM’s prospective earnings recovery, given that the decline in Streamyx customers has more than offset unifi increases consecutively since 2Q17. AmInvestment added that the appointment of a new CEO “provides some reassurance to policy continuity as Imri Mokhtar, the former acting CEO, resumed his previous role as the chief operating officer”. “However, we are cautious on the new strategic direction Noor Kamarul could be embarking on, following TM’s impressive cost-cutting performance in 1Q19, albeit briefly under Imri’s management,’’ the research house said.
Imri was appointed CEO in November, and prior to him, Datuk Bazlan Osman was the acting CEO for about six months. Noor Kamarul was appointed CEO in the middle of this month. But what more can Noor Kamarul do to change TM’s fortunes further?
For starters, Noor Kamarul is said to be interested in growing revenues rather than just relying on cost-cutting measures to shore up profit.
He wants to change the “way they work at TM”, provide quality products, bring products to market-competitive prices and is bent on improving customer service.
“What he has in mind is what TM needs. His challenge is about getting everyone to rally behind him. He also needs to share his plans with the investing public, or else after some time, the enthusiasm in the stock would be muted,” said an industry executive.
The low-hanging fruit for TM is really the 1.28 million Streamyx users that can quickly be connected with fast fibre or wireless connectivity.