KUALA LUMPUR (Feb 26): Shares in state-owned fixed-line operator Telekom Malaysia Bhd (TM) surged on Monday to their highest in three years, as analysts broadly recommended investors to buy the stock following better-than-expected earnings for the fourth quarter ended Dec 31, 2023 (4QFY2023).
The counter rose as much as 19 sen or 3.21% to RM6.10, its highest since February 2021, on Bursa Malaysia, before paring some gains to close at RM6.02 — still up 11 sen or 1.86%, after 8.63 million shares were done. In contrast, the benchmark FBM KLCI index ended the day 0.1% lower.
The company’s set of guidance for FY2024 is “conservative in our view”, said Hong Leong Investment Bank, which reaffirmed its 'buy' rating with a higher target price (TP) of RM7.20. “We are particularly positive on TM's cost optimisation measures, which [are] now yielding an impactful outcome.”
Out of 22 analysts covering the stock, 18 have 'buy' calls, while two have 'hold' and two recommend to 'sell', according to Bloomberg. The median TP is RM6.68, a potential gain of about 11% from the current level.
The stock has racked up an 8.5% gain in less than two months into the year, outperforming the rise in the telecommunications and media sector, thanks to robust earnings for recent quarters.
TM reported last Friday that its 4QFY2023 net profit more than doubled to RM46.3 million from a year ago, thanks to tax credits and higher data revenue, as well as lower costs. The company booked a tax credit of RM46.3 million during the quarter, as opposed to tax expense of RM53.6 million.
Revenue for the quarter, meanwhile, rose 5% year-on-year to RM3.12 billion from RM2.98 billion, mainly from an increase in data, internet and multimedia services, and other telecommunications services.
For FY2024, the company said it is targeting “low single-digit” growth in revenue and earnings before interest and tax of between RM2.1 billion and RM2.2 billion. The company is also planning for 14%-18% capital expenditure as a percentage of revenue.
“Despite the tepid guidance, we note that TM’s strong FCF (free cash flow) generation leaves ample headroom for increased dividends for the longer term,” said Maybank Investment Bank. The research firm reiterated its 'buy' call, with a TP of RM6.80.
TM declared a second interim dividend and final dividend of 15.5 sen per share for a total of about RM594.9 million, bringing total dividend payout to 25 sen per share for FY2023.
A minority of analysts, however, expect little further upside to TM’s share price from current levels, citing recent strong gains. The stock has climbed more than 20% gain in the last six months.
UOB Kay Hian, which downgraded its rating to 'hold' from 'buy', noted that recent gains likely reflected the strong set of results, flagging a 'muted outlook' and elevated operational costs for FY2024.