Quick take: TM shares hit highest in over 4 years

KUALA LUMPUR: Shares in Telekom Malaysia Bhd (TM) rose in early trade Tuesday on expectations of a special dividend for the fourth quarter ended Dec 31, 2020 (4Q20).

The telecommunication giant added 4.46%, or 29 sen to RM6.79, its highest since August, 2016. In a recent report, CGS-CIMB Research foresees TM announcing a special dividend for 4Q20 due to its robust free cash flow (FCF).

The research house assumed a 60% payout ratio for FY20 to FY22 (dividend per share [DPS]: 17.3 to 21.6 sen), in line with TM's dividend policy.

"However, we believe it has the capacity to pay more as its net debt/Ebitda eases from 1.2 time at end-FY20 to 0.9 time at end-FY22.

"Specifically for FY20, given FCF per share of 39.4 sen, we think there could be a special dividend in 4Q20. Assuming an extra 20% payout, FY20 DPS will be 23.1 sen (yield: 3.6%)," CGS-CIMB said, adding that the 4Q20F core EPS may benefit from strong unifi net adds and seasonality.

TM is expected to report its 4Q20 results on Feb 24.

It has reiterated its "add" call on the stock, and raised its target price 25% to RM7.00 after FY20 to FY22 earnings hike.

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