CIMB neutral on TM ahead of 2Q results

CIMB Research yesterday remained neutral on TELEKOM MALAYSIA BHD ™ ahead of the release of second-quarter (2Q) earnings on Friday, despite the latter’s strong share performance of late.

The research house also noted that it “may review” its recommendation following the release of the results.

“Broadband net additions could slow further as competition from wireless providers ratchets up. Also, news flow on a competing fixed broadband network providing high-speed broadband TECHNOLOGY (HSBT) could weaken sentiment on TM,” CIMB said.

In a separate note, CIMB said the Pahang state government’s HSBT “is likely to be negative for TM” if it manages to get off the ground.

“HSBT will be a direct competitor to TM’s high-speed broadband (HSBB) network, which is also an FTTH (fibre-to-the-home) project. However, TM’s HSBB will have a headstart in the crucial areas of the Klang Valley and Johor Baru as HSBT will focus on the city of Kuantan first,” it said.

It was recently reported that HSBT is finalising a RM2 billion bridging loan with several local banks to part fund its RM10 billion planned investment to roll out its open network to 2.5 million homes.

For now, however, TM “remains a defensive stock” in CIMB’s books “given its near monopoly of fixed line telecommunications and attractive net dividend yield of 6.3%”. CIMB’s current top pick among Malaysian telecommunications stocks is Axiata Group Bhd (outperform, RM3.30 target price), as it is bullish on its “growth prospects and attractive valuations”.

CIMB expects TM to report a 2Q09 net profit of between RM120 million and RM135 million, down 33% to 40% quarter-on-quarter and 14-23% year-on-year, “after an unsustainably high 1Q2009 Ebitda (earnings before interest, tax, depreciation and amortisation) margin”.

It expects TM to announce a gross interim dividend of 12 sen per share.

CIMB also noted that TM’s Streamyx broadband net adds could continue to slow on the back of competition from wireless broadband players. “Growth in this segment is at its lowest level since 1Q2005.”

TM closed at RM3.04 yesterday