Selling assets to boost the bottom line has its limits and Telkom can’t shrink its way to greatness
Telkom is turning the corner — or is it? The latest profit guidance for the year ending March paints a striking picture: revenue barely budged at 0.9%, while core profit, or earnings before interest, tax, depreciation and amortisation (ebitda), shot up 28%. That mismatch underscores its reliance on cost-cutting and one-off gains such as property sales to boost the bottom line.
In reaction, Telkom shares jumped more than 8% on Monday morning but gave back all those gains to end 2% weaker. How sustainable is the strategy of looking leaner and more profitable without so much as lifting a figure to boost actual sales?
Sure, Telkom CEO Serame Taukobong deserves a nod for his operational efficiency, but there’s a ceiling to slashing costs. Constant pruning risks hitting the bone, leading to diminished service quality and stunted growth potential. To be fair, though, Telkom’s sharp focus on high-margin segments such as mobile services and fixed data is a smart move. Still, the harsh reality is that minimal revenue growth is a time bomb. Taukobong can’t keep scaling back forever. At some point, the axiom of diminishing returns kicks in, and then what? Sell more property? Hold a yard sale with old office chairs and potted plants?
The upshot is Telkom can’t shrink its way to greatness. Taukobong can sell only so many properties before he’s left with nothing but a hollow shell.
BL @BusinessDay
