Telekom profit seen hurt by competition
February 20, 2001 2:55 am
By Wong Choon Mei
KUALA LUMPUR, Feb 20 (Reuters) - Telekom Malaysia's net profit for financial year 2000 is not expected to show much improvement over the previous year, squeezed by price pressures which analysts say may dog the firm for years to come.
The state-owned telephone giant is expected to release its results next week.
Analysts polled by Reuters put Telekom's net profit at between 700 million and 800 million ringgit ($184-$210 million) and earnings per share of between 22 and 26 cents.
In 1999, Telekom posted net profit of 819.1 million ringgit or 27.2 cents a share.
The consensus for 2000 net profit according to Multex Global Estimates' is 848.6 million ringgit or EPS of 28.1 cents.
"The outlook for Telekom seems bleak. Over the next few years, it faces intense cost pressures due to competition following deregulation in the industry," said Jamaludin Bujang of CIMB Securities.
Despite two recent developments which could augur well for the firm's future prospects, analysts were not bullish on the stock and are maintaining their "hold" rating.
Last month, Telekom said it was considering a merger with internet service provider Jaring -- a move that may give it an 80 percent share of the local Internet market.
Telekom also regrouped its operations into five business units, which analysts said would ease the way for it to bring aboard a foreign partner.
Telekom shares were down 30 cents to 11.90 ringgit at midday, up five percent on the year and against the broader market's almost four percent gain.
"At current prices, the stock is trading at almost 35 times earnings and this is much higher than its peers in the region," said Dennis Lee of TA Securities.
Lee points out that Singapore Telecommunications <TELE> and Hong Kong's Pacifc Century Cyberworks <0008> were trading at multiples of around 25.
HIT BY DEREGULATION
State-owned Telekom has a near monopoly on the fixed line business but lags behind in the cellular market.
Yet even its core fixed-line market, which accounts for 87 percent of total voice business, seems under attack.
"International calls have been hit by the Internet while domestic long distance is also down because of the fat discounts offered by some mobile operators," said TA's Lee.
Last month, the government awarded voice over Internet licences to eight non-telecom firms and promised more de-regulation to come.
Telekom also faces dwindling margins from local calls, which form 40 percent of its fixed-line volume.
The firm's local call charges are the lowest in the market but any request for a hike would require government approval.
"They can try to get an increase in call tariffs but the chances are not good. The government may turn it down on worries of a public outcry," said TA's Lee.
Although Telekom has been privatised since 1987, it remains more than 70 percent owned by the government.
Analysts said it's ability to respond quickly to commercial changes remain hampered by its past.
They said the huge outfit would have to struggle against smaller but more nimble and efficient operators.
"To an extent, it is hurt by its legacy. For example, a decision to reduce costs by laying-off staff may take years," CIMB's Jamaludin said.
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