Hot Stock Telekom shares fall 3.4% after P1 buy

by **Cals** Fri 28 Mar 2014, 12:03

Hot Stock Telekom shares fall 3.4% after P1 buy

Business & Markets 2014

Written by Jonathan Gan of theedgemalaysia.com

Friday, 28 March 2014 11:32

KUALA LUMPUR (Mar 28): Telekom Malaysia Bhd (TM) shares were on the top decliners list in early morning trades today following the company’s acquisition of a 57% stake in Packet One Networks Sdn Bhd (P1), a unit of Green Packet Bhd.

The purchase of loss-making P1 could drag down the performance of TM in the near future, analysts said.

At 11.08 am today, the telco giant’s shares slipped 21 sen or 3.4% to RM5.99 per share with some 8.3 million shares traded.

In a note today, HwangDBS Vickers Research said it was "neutral" on TM’s investment in P1 as TM would have to absorb P1’s losses.

“Assuming P1’s losses in 2014 are the same as in 2013 at RM116 million, this implies RM66 million in exposure and 7% earnings downside in the near term (for TM), which would impact its existing key performance indicators,” said the note.

HwangDBS Vickers has maintained its “fully valued” rating on TM with an unchanged target price of RM4.75.

Meanwhile, AmResearch has lowered TM’s bottom line for FY14F by 3% and FY15F by 5% due to the P1 stake purchase.

“Our preliminary estimates suggest some upside to our projections (EBITDA up by 4%-8% over FY15F-17F but lower bottom line for FY14F by 3% and FY15F by 5%,” said AmResearch.

The research house has maintained its “hold” rating on TM with fair value of RM6 per share.

It sees P1 turning around by FY16 and hitting 1 million subscriber base by FY18. For FY16F, P1 is expected to post a profit.