Telekom Malaysia - Counting on Skim MESRA to manage staff cost HOLD, 14 Oct 2014

TM announced the offering of a special optional retirement scheme called “Skim MESRA” to its employees aged 55 and above. The scheme is basically a voluntary scheme offered by TM, apparently due to request by its employees. There are special incentives and designated benefits until the staff reaches the age of 60. Staff cost is currently the largest chunk of TM’s cost, accounting for 22% of revenue. With the implementation of the Minimum Retirement Age Act 2012 (which increases retirement age from 55 to 60), TM stood the risk of bloating its staff base and hence, its cost. Our last check suggests that circa 20% of TM’s staff is aged between 51 and 55 of age. Assuming full take up and the age distribution is equal among those who qualify; our ballpark estimates suggests a 6% per annum impact to FY15F - FY19F earnings from staff cost reduction. The launch of this scheme is a good countermeasure to the increase in minimum retirement age regulations, in our opinion, but there is little clarity on the cost related to incentives given to those who take up the scheme. Our HOLD call and fair value of RM6.20/share is Under Review pending a meeting with management soon. However, we note that share price has run-up quite significantly over the past two weeks post-completion of the P1 acquisition and ahead of this announcement.

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