TdC’s 9M19 core net profit of RM249m (+17% YoY) was in line. The solid results were mainly driven by data and voice, while data centre softened slightly. Operational excellence drove EBITDA margin expansion of 4ppt to 45%. 9M19 capex amounted to RM109m and extension at Menara AIMS is targeted to complete by year end. Regional associates contributed a total of RM11m to earnings. Reiterate BUY with unchanged SOP-derived TP of RM10.14.

Within expectations. 3Q19 core net profit of RM89m (+5% QoQ, +26% YoY) brings 9M19’s total to RM249m (+17% YoY), which matched expectations accounting for 78% and 77% of HLIB and consensus full year forecasts, respectively. One-off adjustments include bad debt recovery, forex, doubtful debts, PPE write off and reversal of construction deposit.

Dividend. None (3Q18: none) as it usually declares at the end of FY.

QoQ. Top line was flat as 2Q19 was boosted by one-off non-recurring contracts amounted to RM3m. Excluding that, it actually expanded 1% supported by Data (+2%) and Voice (+2%), more than sufficient to offset the decline in Data Centre (-3%). After one-off adjustment, core net profit increased 5% attributable lower D&A, higher investment income and associate contributions.

YoY. Turnover grew 11% supported by higher contributions from Data (+15%) and Voice (+3%), more than sufficient to offset the weakness in Data Centre (-3%). Despite the higher D&A, core PATAMI jumped 26% thanks to improved margin and lower effective corporate tax rate.

YTD. Revenue expanded by 14% mainly driven by Data’s 17% growth, followed by Voice’s 5% gain while Data Centre softened by -1%. Core net profit improved at higher rate of 17% on the back of superior cost discipline despite higher D&A.

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM11m to 9M19’s bottom line. Meanwhile, KIRZ (Thailand) was still in a minor loss in 9M19. 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. 9M19 capex amounted to RM109m in telco assets, with particular focus on upgrading existing network infrastructure and expanding domestic network coverage. Data centre expansion is ongoing at Menara AIMS with additional 10k sqft (2 floors) equivalent to 400 new racks or power capacity of 1MW, to be completed by year end.

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 - 2 Dec 2019