TdC’s 1H19 core net profit of RM160m (+13% YoY) was in line. The solid results were mainly driven by data and voice, while data centre was flat. Partly due to MFRS16, EBITDA margin in 2Q19 shot up to all-time high of 49% thanks to operational excellence. 1H19 capex amounted to RM65m and it will invest in data centre going forward. Regional associates contributed a total of RM7m to earnings. Reiterate BUY with unchanged SOP-derived TP of RM10.14.

Within expectations. 2Q19 core net profit of RM85m (+14% QoQ, +20% YoY) brings 1H19’s total to RM160m (+13% YoY), with matched expectations accounting for 50% and 51% of HLIB and consensus full year forecasts, respectively. One-off adjustments include provisions for forex and doubtful debts.

Dividend. None (2Q18: none) as it usually declares at the end of FY.

QoQ. Top line grew 6% as all product lines gained, led by data (+7%), followed by voice (+3%) and data centre (+1%). 2Q19 had a one-off non-recurring data contract revenue amounting to RM3m. After one-off adjustment, core net profit increased 14% attributable to operational excellence.

YoY. Turnover grew 16% supported by higher contributions from data (+21%) and voice (+7%), more than sufficient to offset the weakness in data centre (-7%). The decline in data centre was mainly due to one-off non-recurring revenue of RM3m in 2Q18; excluding that, data centre would have grown by 2%. In turn, core PATAMI jumped 20% to RM85m on the back of improved margin.

YTD. Revenue expanded by 15% mainly driven by data’s 18% growth, followed by voice’s 6% gain while data centre was flat. Core net profit improved by a lower rate of 13% no thanks to MFRS16. On the pre-MRFS16, bottom line would have grown at a stronger 18% due to efficiency gain.

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM7m to 1H19’s bottom line. Meanwhile, KIRZ (Thailand) broke even and has yet to see any improvement. TdC is working with its associates and partner in Cambodia in network integration to achieve operational synergies and to create a seamless regional telco network across Indochina, Malaysia and Singapore.

CAPEX. 1H19 capex amounted to RM65m vs. earlier guidance of RM320m as submarine cable investment cycle is coming to an end. However, TdC shared that it may invest more in data centre segment going forward.

Forecast. Unchanged as Results Are in Line.

Reiterate BUY with unchanged SOP-derived TP of RM10.14 (see Figure #2). We like TdC as its retail is gaining momentum on the back of reach expansion and undisputable high value products. Also, data centre is expanding resiliently as IT outsourcing, cloud computing and virtualization are widely adopted. GBS is no longer a drag and expected to perform better as demand recovers.

Source: Hong Leong Investment Bank Research - 28 Aug 2019