CGSI Research noted that TM’s generous manpower optimisation programme is set to lift returns on equity for next year to above 20%.
PETALING JAYA: Another round of staff reduction can be expected at Telekom Malaysia Bhd
(TM) this year, following the “overwhelming response” for its manpower optimisation programme.
The telecommunications giant had cut its staff count by 37% between its peak in 2014 and the end of 2024.
Despite this, its underlying staff costs have held in a tight range of RM2.3bil to RM2.6bil between 2015 and 2024, according to an analysis by CGS International Research (CGSI Research).
Quoting TM management, CGSI Research said the strong response for the previous manpower optimisation programme was due to the “generous terms”.
“TM said that given the strong response and estimated payback period of less than two years, it is looking to repeat the programme this year.
“Should TM reduce its staff strength by 2,000 (11% of its end-2024 workforce), we estimate that its staff costs could match Singapore Telecommunications Ltd’s 18.6% for last year by 2028.”
Within CGSI Research’s coverage of telecom companies in Malaysia, Singapore, Thailand and Indonesia, TM has the highest staff costs as a percentage of revenues at 21.9% in 2024.
Most mobile-centric operators have less than 10% staff cost compared to topline.
“We believe that this is a function of an evolving technology base that is shifting from copper cables to fibre as well as an evolution of skills to deal with an increasingly digitalised business.”
CGSI Research also noted that TM’s generous manpower optimisation programme is set to lift returns on equity for next year to above 20% as the staff costs-to-revenue ratio comes off elevated levels.
Looking forward, the research house’s earnings estimates for TM have been adjusted to reflect the added manpower optimisation costs this year.
“This is followed by the savings which we estimate will come in from this year for the optimisation programme last year, and will be fully reflected by 2028, based on a two-year payback assumption.”
CGSI Research lowered its core net profit estimate for this year by 11%, but raised next year’s and 2028’s forecasts by 4.6% and 4.3%, respectively.
Meanwhile, it reiterated its “add” call on TM stock, with a higher target price of RM9.50 per share.
CGSI Research also said that TM’s management confirmed it remains committed to sustaining shareholder value and that it would address the issue of a fast-deleveraging balance sheet.
As of the end of the third quarter of last year, TM’s net debt stood at 0.6 times earnings before interest, tax, depreciation and amortisation.
In comparison, local mobile operators’ net debt positions stood at more than 1.9 times.
“We maintain our view that TM will raise its dividend payout ratio above the current 60% to achieve this, and we have penned in payout ratios of 65%, 70%, 70% for last year, this year and next year.
“We see continued earnings delivery and capital management efforts driving a re-rating of its shares, which trade at an undemanding 12.2 times of next year’s price-earnings ratio while offering dividend yield of 4.4% for this year with potential upside,” the research house added.
