Telekom Malaysia (TM) reported a 20.5% decline in headline net profit for 2QFY21. Stripping out non-operating items, core net profit fell 4.7% to RM254.9m due to higher operating costs, particularly manpower cost. Cumulative 1HFY21 results were in line with expectations. We make no changes to our earnings forecasts. Being the largest domestic data centre provider in Malaysia, we believe TM would benefit from higher data and internet consumption in the future, following the government’s plan to establish hyper-scale data centres under the MyDigital blueprint. Maintain our

Outperform rating with an unchanged TP of RM6.90. An interim dividend of 7.0sen per share was declared (2QFY20: 6.80sen per share).

• 2QFY21 revenue rose 6.6% YoY due to higher contribution from unifi and TM Wholesale. Unifi revenue increased by 10.6% YoY due to a 37.9% jump in unifi customer base on a lower ARPU of RM141 (-6% YoY). Streamyx subscriber base continued to decline (-38.5% YoY) on a more stable ARPU of RM91. TM Wholesale posted a 7.5% increase in revenue, driven by higher IRU (indefeasible right of use) and stronger demand for data services. However, contribution from TM One was flattish.

• 2QFY21 normalised net profit was down 4.7% YoY due to higher operating costs, particularly manpower and depreciation costs. Percentage of total cost to revenue increased from 84.3% in 2QFY20 to 87.4% in the current quarter, mainly due to a 3.1 ppts increase in manpower cost. Meanwhile, depreciation cost increased by 1.2 ppts to 21.8% of revenue.

• Outlook. As the sole Malaysian Cloud Service Provider (CSP) under the Malaysia Digital Economy Blueprint, TM should see benefits in terms of higher data and internet revenue in the future. The group plans to expand its data centre space in anticipation of growing demand from both public and private sectors. There is still vacant land surrounding its Klang Valley Core Data Centre (KVDC) in Cyberjaya but the group is also exploring land outside KVDC. The gross floor area for TM’s KVDC and Iskandar Puteri Core Data Centre (IPDC) is 400,000 sqf and 350,000 sqf respectively.

Source: PublicInvest Research - 30 Aug 2021