TdC’s FY19 core net profit of RM353m (+21% YoY) was a beat. The solid results were mainly driven by data and voice, while data centre softened slightly. Operational excellence drove EBITDA margin expansion of 2ppt to 43%. FY20 capex is budgeted at RM530m for BAU, data centre build and regional expansion. Regional associates contributed a total of RM15m to FY19 earnings while it plans to exit KIRZ. Reiterate BUY with higher SOP TP of RM10.16.

Above expectations. 4Q19 core net profit of RM104m (+17% QoQ, +33% YoY) brings FY19’s total to RM353m (+21% YoY), which exceeds expectations accounting for 111% and 109% of HLIB and consensus full year forecasts, respectively. The positive surprise was attributable to higher-than-expected EBITDA margin. FY19 one off adjustments include bad debt recovery (RM0.1m), forex loss (RM2m), doubtful debts (RM15m), PPE disposal gain (RM0.1m), PPE write off (RM7m), reversal of construction deposit (RM1m) and provision for financial guarantee (RM16m).

Dividend. Declared ordinary interim and special interim tax exempt (single tier) dividend of 9.95 sen (FY18: 9.25 sen) and 19.08 sen (FY18: 11.31 sen) per share. They will go ex on 17 Mar.

QoQ. Top line gained 6% to RM295m as all products expanded with Data +5%, Data Centre +9% and Voice +9%. After one-off adjustment, core net profit jumped 17% attributed to improved margins and higher net interest income.

YoY. Turnover grew 12% supported by higher contributions from Data (+16%) and Voice (+7%), more than sufficient to offset the weakness in Data Centre (-5%). Despite higher D&A, core PATAMI surged 33% thanks to improved margin and lower effective corporate tax rate.

YTD. Revenue expanded by 13% mainly driven by Data’s 17% growth, followed by Voice’s 5% gain while Data Centre softened by -2%. Core net profit improved at higher rate of 21% on the back of superior cost discipline despite higher D&A and lower tax.

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM15m to FY19’s bottom line. Unfortunately, KIRZ did not turn out to be fruitful and is currently in the midst of exiting this investment.

CAPEX. The purchase of Menara AIMS at RM96m has lifted FY19 capex to RM267m. Budgeted RM530m for FY20 for (1) Cyberjaya data centre construction (RM100m); (2) BAU (RM330m); and (3) Regional data centre and cable upgrades (RM100m).

Forecast. Update model with latest financial figures and capex guidance. In turn, FY20-21 earnings were lifted marginally by 1% each.

Reiterate BUY with higher SOP-derived TP of RM10.16 (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 - 9 Mar 2020