KUALA LUMPUR (Nov 26): Telekom Malaysia Bhd (TM) rose as much as 13 sen or 2.69% to RM4.97 in intra-morning trade today after recording better-than-expected results.
At 10.19am, the counter had pared some gains to settle at RM4.94, still 10 sen or 2.07% higher than its last closing price.
The counter, among the top gainers this morning, saw 3.76 million shares change hands.
Hong Leong Investment Bank (HLIB) Research analyst Tan J Young said in a note today TM’s core profit after tax and minority interests (PATAMI) of RM797 million for the cumulative first nine months ended Sept 30, 2020 (9MFY20) beat his expectations, thanks to effective measures of cost savings despite its top line’s drag amid a challenging period.
As TM expects its earnings before interest and taxes (EBIT) this year to range between RM1.3 billion and RM1.5 billion, Tan also raised his earnings per share (EPS) forecasts for FY20 to FY22 by 18%, 10% and 8% respectively.
After raising his estimates, he maintained his "buy" call for TM and raised his target price (TP) to RM5.97 from RM5.22.
Meanwhile, in a note today, Maybank Investment Bank Research analyst Tan Chi Wei said TM's core net profit for the third quarter ended Sept 30, 2020 (3QFY20) exceeded his expectations, with the better performance attributable to lower interest expenses and taxes.
“The results reaffirmed TM’s ongoing success with cost optimisation (its earnings before interest, taxes, depreciation and amortisation [EBITDA] margin is now at a record high),” he said.
He raised his FY20/21/22 net profit forecasts for TM by 6%/26%/40% to reflect its latest run rates.
“Management’s revised RM1.3 billion to RM1.5 billion EBIT guidance appears conservative, particularly as operations were not disrupted in October to November 2020,” he said.
He also opined that TM’s share price had yet to fully reflect its higher earnings run rate.
Thus, he upgraded TM to "buy" from "hold", and revised his TP to RM5.50 from RM4.30 following the earnings revisions.
“TM is now our preferred pick in the sector,” he said.
Meanwhile, PublicInvest Research analyst Eltricia Foong said in a note that TM’s 9MFY20 results beat her estimates, accounting for 87% of her full-year forecast.
According to her, the shortfall in her earnings forecast was mainly due to higher direct cost and a higher effective tax rate.
Thus, she raised her forecasts for TM for FY20 to FY22 by 10% to 11% after lowering her cost assumptions.
“Although the capex (capital expenditure) guidance for FY20 has been reduced from about 20% to 12% to 15% of revenue, we maintain our forecasts of capex at 20% of revenue for FY21 to FY22 as we expect spending to pick up in view of TM’s commitment to supporting the country’s aspirations in providing nationwide digital connectivity,” she said.
Following the adjustment, her TP was revised up to RM4.40 from RM4.
“However, given a 9% potential downside and the recent run-up in its share price (which probably was priced in ahead of the positive set of results), we cut our rating of TM from 'neutral' to 'trading sell',” she said.
TM yesterday reported a 26% increase in net profit to RM329.4 million for 3QFY20, from RM261.3 million a year earlier, partly due to a shift towards working from home amid the Covid-19 pandemic. Revenue for the quarter fell 5.7% to RM2.69 billion from RM2.85 billion for the previous year’s corresponding quarter.
For 9MFY20, its net profit stood at RM756.67 million, 11% higher year-on-year from RM683.77 million previously, while cumulative revenue was down 6.7% at RM7.84 billion versus RM8.4 billion a year ago.