UPDATE 1-Telekom Malaysia wins highspeed broadband project

(Updating with analyst comment, background)

By Soo Ai Peng

KUALA LUMPUR, Sept 2 (Reuters) - Telekom Malaysia (TLMM.KL), the country's dominant fixed-line provider, has been awarded an 11.31 billion ringgit ($3.3 billion) government contract to develop Malaysia's high-speed broadband network.

Telekom Malaysia said in a statement on Tuesday the government's portion of funding was 2.4 billion ringgit over 10 years, with the company investing the remaining 8.91 billion ringgit.

The state-controlled firm said it would enter into a formal agreement with the government following the acceptance of a letter of award from the government.

"Further details and relevant information would be announced upon the execution of the HSBB Agreement between the government and Telekom Malaysia," it said.

Malaysia aims to increase broadband penetration to half of all homes by 2010, from 18 percent now. This compares with neighbouring Singapore's rate of 78 percent and Hong Kong's 80 percent.

As growth of its fixed-line business stagnates, Telekom Malaysia is looking to its broadband operations to drive future growth after its mobile-phone assets were spun off in April.

"This is a positive development for Telekom Malaysia," a telecommunications sector analyst at Aseambankers Research said.

"The company's balance sheet is lightly geared, it can take on additional debt to service its working capital requirements and heavier capex programme. I don't think the project would have any impact on the company's dividend policy," he said.

Telekom Malaysia has said it would pay out at least 700 million ringgit in dividends in the current financial year.

Some analysts had suggested the broadband project could hurt Telekom Malaysia's ability to pay out special dividends.

Telekom Malaysia shares ended 2.8 percent higher at 3.68 ringgit before the announcement and during a day in which the market as a whole .KLSE lost 1.23 percent.

The stock has gained 2.3 percent so far this year, outperforming the benchmark index's 25 percent loss. (Reporting by Soo Ai Peng; Editing by David Chance)