CIMB says TM's mobile venture 'very challenging' amid established rivals

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KUALA LUMPUR (July 6): Fixed-lined telecommunication entity Telekom Malaysia Bhd's (TM) mobile venture is not expected to be easy as the company will have to compete against established rivals here, according to CIMB Investment Bank Bhd.

In a note today, CIMB said TM, via 55.3%-owned subsidiary Packet One Networks (M) Sdn Bhd (P1), would have to contend with mobile telecommunication network providers DiGi.Com Bhd and Maxis Bhd's established presence in the segment.

“While TM says it is not positioning itself to compete head on with the mobile incumbents, we think this is inevitable as the mobile business becomes increasingly data-centric.

“We believe it will be very challenging for P1 as incumbents have much stronger branding and established sales and distribution networks. A key de-rating catalyst is the build-up in earnings dilution from P1 over the next three years, dragging down TM’s earnings growth," CIMB said.

CIMB issued its note on TM in response to a report by The Edge Malaysia business and investment weekly (Edge Weekly).

Edge Weekly quoted TM chief executive officer Tan Sri Zamzamzairani Mohd Isa as saying in an interview TM intended to become a convergence champion within three to five years via fixed and mobile Internet services.

It was reported that although it appeared that P1 might fight with the Big 3 — Maxis, DiGi and Celcom — for market share, Zamzamzairani clarified that TM was not positioning itself as a mobile operator.

At 3.03pm, TM shares dipped 14 sen or 2% to RM6.71 for a market capitalisation of RM25.22 billion.

Some two million shares changed hands.

CIMB said it had maintained its "reduce" rating on TM shares with an unchanged target price of RM6.30.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)