PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 30 Nov 2020, 4:57 PM


Telekom Malaysia - Higher Earnings On Lower Costs

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Telekom Malaysia (TM) reported headline 2QFY20 net profit of RM274.7m, jumping by 140% YoY on lower operating cost and net interest cost as well as recognition of impairment loss in 2QFY19. Stripping out non-operational items, TM posted a normalised 2QFY20 net profit of RM267.6m (+18% YoY), mainly due to lower direct and manpower costs. For 1HFY20, results were in line with our estimate but beat consensus, accounting for 61% of full-year forecast. We make no changes to our earnings forecasts. Maintain Neutral on TM with an unchanged TP of RM4.00. An interim dividend of 6.8sen per share was declared.

  • 2QFY20 revenue was down 6.4% YoY due to lower contribution from all business segments, particularly voice (-12.8% YoY) and internet (- 4.9% YoY) revenue due to lower Streamyx customer base and decline in overall ARPU. Business volume was also affected by restricted economic activities during the Movement Control Order (MCO) period. With deferment of customer project activities, Other revenue was down 15.2% YoY. However, data revenue improved 3.7% YoY on the back of higher IRU and domestic data consumption.
  • 2QFY20 normalised net profit rose 18% YoY. Despite lower revenue, earnings improved in 2QFY20 mainly due to lower operating costs. Total cost over revenue dropped from 90.9% in 2QFY19 to 84.3% in 2QFY20. This was largely due to the absence of impairment loss amounting to RM125m, lower direct and manpower costs. Meanwhile, capex has dropped to 8.4% of revenue in 2QFY20 from 10.8% in 2QFY19. However, we expect capex to pick up in 2H20 given the reopening of the economy after a period of lockdown in 1H20.
  • Outlook. We are generally positive on the recent appointment of Imri Mokhtar as the new Managing Director and Group Chief Executive Officer (GCEO) of TM effective 1 Aug. Being a home-grown talent within the group and was believed to have navigated TM towards operational efficiency during his short tenure as the Acting GCEO in 2018/19, we reckon he is suited for role to lead TM. For the sector, deployment of 5G network would be the key focus but without the finalisation of spectrum award, we believe the rollout of the next-generation wireless technology is likely to be delayed to 2022/23. Therefore, over the next 12 months, we reckon that TM’s earnings growth trajectory would be very much dependent on management’s ability to rationalise cost on muted revenue growth.

Source: PublicInvest Research - 28 Aug 2020

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