Telekom Malaysia is facing a tough choice that could shape its future: a short-term financial hit or long-term profitability. But here's where it gets controversial—while voluntary retrenchments might sting now, analysts argue they could pave the way for bigger gains down the line. Let’s break it down.
In a recent update from Kuala Lumpur, Telekom Malaysia Bhd (KL:TM) revealed that its fourth-quarter earnings might take a knock due to the costs associated with its voluntary separation scheme (VSS). The program, designed to streamline operations, saw a higher-than-expected number of employees opting in. This surge in applications means the company will need to set aside more funds in the near term, potentially impacting its bottom line. Yet, analysts suggest this move could lead to reduced staffing costs and improved profitability in the years ahead.
And this is the part most people miss—while the immediate financial impact might seem negative, the long-term benefits could outweigh the initial pain. CGS International, for instance, predicts that the VSS will weigh on 2025 results but expects higher profits in 2026 and 2027. They’ve maintained an ‘add’ rating for Telekom Malaysia, signaling confidence in its future performance.
On Monday, the company confirmed in an exchange filing that the VSS had received a “significant” number of applications, which it believes will enhance long-term productivity. Investors seemed to agree, as Telekom Malaysia’s shares rose by nearly 3% to RM7.44 on Tuesday, buoyed by stronger-than-expected results and upward revisions in earnings forecasts.
So far this year, the stock has climbed about 16%, outpacing the broader market. Analysts remain largely bullish, with 17 ‘buy’ recommendations out of nearly two dozen research houses. Only two suggest ‘sell,’ while the rest advise ‘hold.’ Bloomberg’s average target price of RM7.95 implies a 7% upside in the next 12 months.
Phillip Capital highlights that while near-term earnings may dip, Telekom Malaysia’s leadership in fixed broadband positions it well for long-term growth. Unifi’s retail broadband segment saw improvements in the third quarter, driven by higher average revenue per user and subscriber growth. Meanwhile, TM Global’s wholesale business experienced strong growth, fueled by demand for cross-border connectivity and advanced data services.
Here’s a thought-provoking question: Is Telekom Malaysia’s focus on long-term gains at the expense of short-term stability a wise strategy, or could it backfire in an unpredictable market? Public Investment Bank believes TM Global will be a key growth driver, especially as Malaysia expands its network infrastructure and positions itself as a regional digital hub. But what do you think? Is this a calculated risk worth taking, or should the company prioritize immediate financial health?
Let us know your thoughts in the comments—we’d love to hear your perspective on this bold move by Telekom Malaysia.
