TM’s FY19 core PATAMI of RM1bn (+58% YoY) matched expectations. This expansionary performance was achieved on the back of operational excellence where EBITDA margin improved 6ppt to 34%. The strength in Data even before 5G rollout validates our thesis that fibre demand is exceptionally strong. In view of the higher-than-expected capex guidance, we reduce our forecasts which resulted in lower DCF-derived TP of RM4.82. Maintain BUY.

Within expectations. 4Q19 core net profit of RM190m (-34% QoQ, +81% YoY) sums FY19’s total to RM1bn (+58% YoY) accounting for 105% and 102% of HLIB and consensus full year forecasts, respectively. 4Q19 adjusted earnings was arrived after excluding fair value loss amounting to RM234m on its subscription of Exchangeable MTNs issued by a non-controlling interest of a subsidiary.

Dividend. Declared final interim single-tier DPS of 10 sen (FY18: 2 sen) and this is lower-than-expected. Ex-date on 6 Mar.

QoQ. Top line grew 6% driven by Data (+27%), Voice (+6%) and Others (+4%), more than sufficient to offset the decline in Internet (-6%) which was dragged by FTTH product repricing. However, core net profit dropped by 34% to RM190m on the back of higher direct cost (+13%) and D&A (+11%) due to its back-loaded capex cycle.

YoY. Sales softened by 2% as the growth in Data (+27%) was partly weakened by the declines in Voice (-15%) and Internet (-10%) and Others (-4%). Nonetheless, core net profit grew by 81% thanks to efficient cost structure and narrower loss at unifi mobile.

YTD. Turnover fell by 3% as the growth in Data (+17%) was sufficient to overcome the contractions in Internet (-7%), Voice (-11%) and Others’ (-7%). However, core net profit surged 58% for the same reasons mentioned above.

unifi and Streamyx. Added 71k unifi subs in 4Q19 elevating total base to 1.4m, representing 41% take up rate on the back of 3.5m high-speed broadband ports. ARPU continued trend downward stubbornly by falling RM14 QoQ to RM153. On the contrary, copper broadband continued to experience churn albeit at a rate of 45k subs QoQ and ended FY19 with a base of 741k. At the same time, ARPU (redefined) eroded sharply by RM15 QoQ to RM96.

FY20 guidance. (1) Revenue growth to be low to mid-single digit decline; (2) EBIT to be higher than RM1bn; and (3) Capex to be low-to-mid-20% of revenue.

Forecast. Update model with latest financial figures and guidance. In turn, FY20-21 EPS are toned down by 4% and 7%, respectively reflecting the materially increased capex exert pressure on earnings. Maintain BUY call on the back of lower DCF-derived fair value of RM4.82 with WACC of 8% and TG of 0.5% (previously 1.0%). We are particularly positive on its cost optimization measures which now yielding an impactful outcome. Leveraging on its extensive fibre reach, TM is definitely a prime beneficiary of 5G rollout. Other catalysts include the awards of NFCP and 5G airwaves.

Source: Hong Leong Investment Bank Research - 24 Feb 2020