Telekom Malaysia spreads its wings to RI, India
Telekom Malaysia spreads its wings to RI, India
Dow Jones, Kuala Lumpur
Telekom Malaysia Bhd. has begun to spread its wings overseas, but it will be awhile before its Indian and Indonesian investments begin to pay off in substantially stronger earnings.
Telekom Malaysia's recent stake buys in Indonesia and India will help the company grow revenue and earnings in coming years as the domestic market becomes more saturated, analysts say, but Malaysia's biggest telecommunications company won't have an easy time contending with existing competition in those countries.
On Saturday, Telekom Malaysia and the Singapore government's Singapore Technologies Telemedia Pte. Ltd., agreed to buy 47.7 percent of Idea Cellular Ltd., India's fifth-largest mobile phone operator, for about US$390 million after protracted talks.
Thursday, Telekom Malaysia said it would buy a 27.3 percent stake in Indonesia's PT Excelcomindo Pratama, Indonesia's third- largest mobile operator, for $314 million.
Both deals will be done through TM International, the investment arm of Telekom Malaysia.
Telekom Malaysia said new investments in India and Indonesia will improve earnings as of 2006. "From 2006 onwards, it (the acquisitions) will be earnings-enhancing," Abdul Wahid Omar, Telekom Malaysia's chief executive officer, told reporters at a briefing Monday afternoon. However, he didn't provide further details.
Abdul Wahid also said Telekom Malaysia aims to have a majority stake in Excelcomindo, but didn't give a timeframe for doing so.
Analysts are generally positive about Telekom Malaysia's expansion plan in the region, noting that Malaysia's mobile phone market will likely have a penetration rate of 60 percent by 2006, from 50 percent currently. But they are quick to add that Indonesia and India already have existing cellular-service providers, and that competition in those markets will only increase going ahead.
"The investments in Indonesia and India are good in theory but Telekom has to compete with other (existing) players," said an analyst with a foreign research firm. "Telekom's track record in overseas markets is rather patchy," he added.
Should Telekom Malaysia rise to the challenge overseas, any positive impact from the new investments will only materialize over the next two to three years at the earliest, analysts point out.
"This is a strategic investment for Telekom to become a significant wireless player in the Asian market," said a telecommunications analyst with Mayban Securities, referring to the Indonesian and Indian deals.
But "pending further guidance from the management (of Telekom Malaysia), we maintain our (earnings) forecast and 'hold' recommendation," he added.
The analyst also said the two new investments will help to make up for the loss of earnings from Telekom Malaysia's South African operations, which it sold off earlier this year.