Hmmm, Telekom Malaysia giving back money to shareholders at a time when companies are posting lower results and reducing dividends. Hey, many companies are even having trouble raising fresh funds. Basically TM is saying that it does not need that much capital going forward, hence don't need so much capital.TM pushed through a demerger in its fixed and mobile services last April. It has proposed a capital repayment of RM3.5 billion or 98 sen per share to shareholders. In addition to the capital repayment plan, TM also announced a final gross dividend of 14.25 sen per share, less tax, totalling RM382 million. It brings TM's total dividend payout to RM700 million, in line with its policy of paying out RM700 million or up to 90% of net profit, whichever is higher. The capital repayment and dividend came even as TM's net profits fell 72% to RM164.81 million in its fourth quarter (4Q) ended Dec 31, 2008 from RM592.46 million a year earlier and by nearly 70% to RM791.86 million for the full 2008 fiscal year from RM2.55 billion in FY07, due to exceptional items.
Some papers announced the plans as "windfalls to shareholders", its not windfalls, its giving back money which you owned in the first place. Apa ini windfall?? TM said the proposed capital repayment was expected to be funded by the anticipated RM4.02 billion repayment from TM International Bhd (TMI). TM said TMI had on Feb 16 undertaken to pay the RM4.02 billion and any interest owing to it in accordance with the terms of the demerger agreement by April 24, 2009.
Khazanah owns TM, then creates TMI from TM so that the bulk of the growth and capital requirements would be funded by the TMI vehicle. That frees up TM as a cash churning vehicle. As TM's business is very solid but low growth in nature, its capital expenditure requirements will not be that high.
There is the ONE solid block of business under TM, that is High Speed BroadBand (HSBB). TM will need to fork out RM8.9bn of the total RM11.3bn for HSBB. The sum will be matched somewhat by the government's RM2.4bn. HSBB's objective is to raise the broadband penetration from the current 17% to 50% by 2010.
Take out the HSBB committments, TM needs about RM1.5bn in capex each year just under 20% of annual revenue of TM. If you add in the HSBB project, the actual capex from that will be around RM900-RM1bn a year.
Many will be griping that the capital repayment is not necessary, well maybe so, but it does not really hurt TM. Its gearing and debt levels are still OK. In fact now that it has hived off the more volatile overseas mobile businesses into TMI, its business model is rock solid. Even the HSBB project is likely to enlarge TM's footprint and domination of critical internet and telecommunication services for the years ahead. Its domination and diminishing fixed line business will be more than complemented by the HSBB project.
It is now getting to the stage whereby investors should regard TM more like BAT or Carlsberg. Its safe enough to lock away for years. Minimum of RM700m dividends a year works out to 19 sen gross. Just buy and lock away for those who do not want to think so much.
The mastermind behind all this is Khazanah. It has the same shareholding level in TM as before but now with the demerger, it basically gets almost RM2bn cash out of thin air and still holds the same stakes. At least I want shrewd and smart people running Khazanah, so no complaints here.
p/s photo: Nia Ramadhani
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