TdC’s 1H20 core net profit of RM160m (flat YoY) was ahead of HLIB but in line with consensus. The outperformance was attributable to higher-than-expected EBITDA margin and lower-than-expected D&A. On the YoY basis, core net profit was flat despite significantly higher effective tax rate thanks to commendable top line expansion and cost discipline. Regional associates contributed a total of RM9m (+21% YoY) in 1Q20. Upgrade to BUY but with higher SOP-derived TP of RM12.38.

Above expectation. 2Q20 core net profit of RM85m (+15% QoQ, flat YoY) brought 1H20 sum to RM160m (flat YoY), which is ahead of HLIB expectation accounting for 53% of our full year forecast while in line with consensus at 48%. 2H is seasonally a stronger half (1H19 core earnings accounted for 45% of FY19). The deviations were from stronger-than-expected EBITDA margin and lower-than-expected D&A. 2Q20 one-off adjustments include net bad debt recovered (RM43k), forex loss (RM12m), doubtful debts (RM1m) and PPE written off (RM2m).

Dividend. None (2Q19: none). TdC usually declares dividend at the end of FY.

QoQ. Top line gained 4% as the growths in Data (+4%) and Data Centre (+1%) was more than sufficient to offset the contraction in Voice (-1%). In turn, core net profit expanded 15% mainly due to higher adjusted EBITDA margin (+4ppt).

YoY. Turnover grew 10% supported by higher contributions from Data (+11%) and Data Centre (+6%) while Voice (-2%) declined. However, core PATAMI was flat at RM85m attributable to the higher tax rate of 29% in 2Q20 (vs 2Q19: 4%).

YTD. Sales strengthened by 11% led by Data (+12%) and followed by Data Centre (+7%) while Voice was flat. Core earnings was flat at RM160m despite the higher effective tax rate.

Source: Hong Leong Investment Bank Research - 24 Aug 2020