KUALA LUMPUR: Telekom Malaysia Bhd (TM) could announce a special dividend in the fourth quarter ended Dec 31,2020 supported by its robust free cash flow of 39.4 sen, according to CGS-CIMB Research.
This is based on the current assumption of a 60% payout ratio for FY20-FY22 dividend per share (DPS) of 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 (earnings before interest, taxes, depreciation, and amortisation) eases from 1.2 times at end-FY20 to 0.9 times at end-FY22.
“Specifically for FY20 forecast, given free cash flow per share of 39.4 sen, we think there could be a special dividend in Q4’20, ” it said in a research report.
It added that assuming an extra 20% payout, FY20 forecast DPS would be be 23.1 sen, translating to a yield of 3.6%.
Meanwhile, the higher demand from students studying at home and employees working from home due to the conditional movement control order would result in stronger Unifi subscriber growth in the Q4’20 forecast compared with Q3’20.
“We think most of the new subscribers signed up for the lower-priced 30/100Mbps plans, though the bundling in of content and upgrades to higher-speed plans by some existing subscribers likely helped support overall unifi average revenue per user.
“For wholesale, we believe there was also fulfilment of some backlog and healthy demand for new fibre broadband connections in Q4’20, ” it said.
Given the higher unifi demand, CGS-CIMB Research expects total revenue to be up by 9% to 10% quarter-on-quarter (q-o-q) and Ebitda to rise by 7% to 8% q-o-q for the Q4’20 forecast. Meanwhile, it also said Ebitda margin likely eased 0.5% to 1% points q-o-q to around 38% due to seasonally higher costs but this was still a major 5% to 6% point improvement year-on-year (y-o-y).
“FY20 forecast EBIT likely came in at around RM1.7bil, soundly beating TM’s guidance of RM1.3bil-1.5bil, ” it added.
TM will post its Q4’20 financial results on Feb 24.
Similarly, CGS-CIMB Research expects the group’s Q4’20 core earnings per share (EPS) may benefit from strong Unifi net adds and seasonality.
The research house raised TM’s core EPS by 2.7% 5.1% and 8.8% to 15.4% for FY20 and FY22 respectively.
Given the revision in its forecasts, the research house expected TM’s Ebitda to grow 0.6%, 6.4%, 4.2% for FY20, FY21 and FY22 forecasts, respectively, on revenue recovery, with cost-saving initiatives which would mitigate any pressure from fibre rollout acceleration.Moreover, it noted that the group’s core EPS would rise by 8.4%, 15.4%, 7.9% y-o-y, which would be partly offset by rising depreciation.
CGS-CIMB Research is maintaining an “add “call on TM with a 25% higher target price of RM7 following stronger earnings seen for FY20 to FY22.