Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: OSK

KUALA LUMPUR: OSK Research said its fundamental view on Telekom Malaysia remains unchanged and it is retaining its NEUTRAL recommendation.

The research house said on Friday, Dec 3 that TM is trading at a stretched 20.1 times FY11 EPS, which is not justified given the structural erosion in its traditional fixed line business, competition risks in the mobile broadband segment and persistent margin pressure.

'Our target price of RM3.28 is 5% below the current share price,' it said, in its comments after TM proposed to undertake the disposal of up to 191.5 million Axiata shares which were previously issued as part of an ESOS programme, for which the options were not exercised and lapsed on Set 16.

The disposal will be carried out via a private placement executed through a book building exercise to institutional/sophisticated investors and/or in the open market.

'We are not surprised by the latest move, which is currently the talk of the investment community and consistent with its focus to monetise its non-core investments and assets. The key unknown is what management intends to do with the proceeds, which based on the last close of Axiata's shares, would work out to RM907.5 million (25 sen per TM share), giving a resultant gain on disposal of RM473 million (TM's cost of investment is RM2.27 for the 2.7% stake).

TM had said the proceeds would be used for working capital, investments and/or acquisitions, including the repayment of borrowings. TM is slated to repay a US$250 million (RM800 million) bond due by end-4Q10.