IN DEPTH: Telecom Malaysia International Q1 2008 Results
TM International, the former mobile arm of Telekom Malaysia, has reported results independently for the first time, despite only having been demerged from the parent company at the end of April. Telekom Malaysia has been preparing for the spin-off for some time, transferring all of the relevant assets into the TM International division, including domestic mobile concern Celcom, before issuing paper in the new company to its own shareholders. This demerger process was completed on 25th April and trading began on the new TMI stock on the Bursa Malaysia on 28t h April. After initially trading at just over RM7,500 the share price has stayed very steady, with a maximum variation of around 7%.
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Customers, EOP (m) by Market, Q1 06 - Q1 08
Key Financials (RM bn), Q1 08 vs Q4 07, Q1 07
Customer Growth by Market, year to 31st March 2008
So what does this “new” force in Asian mobile look like, as an independent entity?
The company has a presence in seven markets in the region - four in South East Asia (Malaysia, Indonesia, Cambodia and Singapore) and three on the sub-continent (Bangladesh, Sri Lanka and India) - as well as a stake in niche Iranian player MTCE. Together the eight operations had a venture customer base of 44.1m at the end of March 2008, 10.9% up in the quarter and 45.5% up year on year. Five of these eight are subsidiaries - XL Indonesia, Celcom Malaysia, Dialog Sri Lanka, TMIB Bangladesh, and TMIC Cambodia - whilst the other three - Spice India, M1 Singapore and MTCE Iran - are associates.
XL in Indonesia is by far the largest part of the TMI business, contributing 41.7% of the venture total with its 18.4m strong customer base. Its influence within the group has grown by almost 10pp over the last nine months as annual customer growth topped 82.2% - which also leaves it head and shoulders above its sister businesses as the fastest growing part of the portfolio. Celcom and TMIB are the next two largest parts, contributing 7.6m (17.2%) and 7.4m (16.8%) to the venture total, but are both much slower growing with annual increases of 21.3% and 18.5%, respectively, in the 12 months to 31s t March. In Bangladesh, the slow progress cost TMI its second position in the market in Q1 08 as Orascom’s Banglalink overtook it on the back of a phenomenal 115% increase in customer numbers. The last of the major subsidiaries, Dialog in Sri Lanka - the only market where TMI’s company enjoys the number one spot - managed 35% growth in the year to take its base to 4.5m - just over 10% of the March 2008 total. Last (and, unfortunately, least) TMIC Cambodia recorded a 52.8% increase in customer numbers, but only to just over one-third of a million, leaving it firmly in third and last place in the market.
Broadly speaking, the revenue performance of the subsidiaries followed the pattern of subscriber growth. XL was the engine with a 58% increase in local currency terms, followed by TMIC with 34% and Dialog with 21%, whilst the Bangladeshi operation saw a 5% reduction in its top line. Celcom is not included in the official financial results for Q1 08, as it was not integrated into the TMI group until after the end of the quarter, but pro-forma figures show its revenues increasing by 11% year on year to RM1.36bn - 49% of the group total.
XL was the next biggest contributor with 33% of the pro-forma revenues for the first quarter, followed by Sri Lanka (10%), Bangladesh (6%) and Cambodia (2%).
In EBITDA terms, both Malaysia and Indonesia are slightly more profitable than average, with 52% and 35% of the total, respectively. The other subsidiaries were under par, and not just relatively speaking, with EBITDA declining by 11% in Bangladesh and by 23% in Sri Lanka as a result of increased competition, inflation, lower levels of roaming and startup costs relating to fixed and TV services. Revenues at TMI were up 26% to RM1.40bn - although the result was affected adversely by the appreciation of the Malaysian Ringgit against the currencies of the subsidiaries. Including Celcom, pro-forma revenues rose 18% to RM2.72bn. Only 10% of the increase showed through at the EBITDA level, due to higher levels of competition in general and the result in Sri Lanka in particular.
As a result, the first quarter margin fell by 3pp from 44.1% to 41.1%.
Then there are the associates. Unlike Singtel, where virtually the entire portfolio is made up of non-controlled businesses, only 14% of the venture customer base at TMI is not under majority ownership. Over two-thirds of this 6.2m strong associate base is in India, through joint-venture Spice Telecom, which was the second fastest growing business in the group with a 54.3% increase in the year to 31st March. Spice only operates in two of India’s telecom circles, and is only the 8th biggest operator in the country as a result, with a national market share of only 1.6%.
In fact TMI lags behind in its other associate markets too, bringing up the rear in Singapore with 26.2% market share, and in Iran where it has a statistically insignificant presence, with a market share of just 0.1%. Spice made the biggest contribution to the bottom line last year, with a RM10m loss, but that loss was wiped out this year leaving post-tax profits up 18% at RM403m, despite a higher cost of borrowing relating to XL and TMIB, and the strength of the Ringgit.
Posted to the site on 5th June 2008
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