The Three Numbers That Connect Telekom Malaysia Berhad

In the grand scheme of things, Telekom Malaysia Berhad (KLSE: 4707; KLSE: TM) is not that big. It is only slightly bigger than StarHub (SGX: CC3) and about an-eighth the size of Singtel (SGX: Z74). But what it lacks in size, it tries to make up for elsewhere.

Telekom Malaysia, or TM, has delivered a consistently high Return on Equity (RoE). At 8.7%, it implies that Malaysia’s fixed-line operator generated MYR8.70 of bottom-line profit on every MYR100 of shareholder equity. That is roughly in line with the market average.

Telekom Malaysia is not massively profitable. Its Net Income Margin of 5.9% pales in comparison to that of SingTel, StarHub and M1 (SGX: B2F). It implies that the company with around 2.3 million broadband customers generated MYR5.90 on every MYR100 of sales.

Telekom Malaysia is quite efficient, though. Last year it generated MYR49.80 of revenues on every MYR100 of asset employed in the business. Its Asset Turnover of 0.49 is about a-third higher than the 30 companies that make up the Kuala Lumpur Composite Index.

Telekom Malaysia does make use of leverage. In 2015, it had MYR15.8 billion of Net Liabilities and MYR23.7 billion of Net Assets. That equates to a Leverage Ratio of 3.0.

By dismantling the Return on Equity for Telekom Malaysia, it is easy to see how the company makes money for shareholders. It RoE of 8.7% is the product of an average Net Income Margin 5.9%; an above-average 0.49 and a whopping Asset Turnover 3.0.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.