TM’s 9M20 core PATAMI of RM797m (-2% YoY) beat expectations on the back of effective cost savings measures despite top line’s drag amidst this challenging period. Unifi base continued to expand while copper broadband quarterly churn partly mitigated by ARPU uplift. TM raised EBIT guidance to RM1.3bn-RM1.5bn. After raising FY20-22 estimate s and updating WACC, our DCF-derived TP is higher at RM5.97. Maintain BUY.

Exceeds expectations. 3Q20 core net profit of RM289m (+8% QoQ, +0.4% YoY) brought 9M20’s sum to RM797m (-2% YoY) which was a positive surprise, accounting for 94% and 87% of HLIB and consensus full year forecasts, respectively. Key deviations were lower-than-expected D&A and corporate tax rate. 9M20 core earnings were arrived after excluding borrowing forex loss of RM11m, settlements and placements forex loss of RM25m.

Dividend. None (3Q19: none). YTD DPS amounted to 6.8 sen (1H19: none)

QoQ. Top line gained 4% as all products expanded led by voice (+11%), followed by Internet, Data and Others with +2% each. Despite the higher D&A (+1%) and effective corporate tax rate (3Q20: 23% vs 2Q20: 20%), core net profit climbed stronger by 8% to RM289m on the back of superior cost structure and lower finance cost.

YoY. Sales softened by 6% as most products recorded weaker performances led by Others (-29%), followed by Voice (-3%) and Internet (-3%). Data was the only product which grew 8% supported by higher IRU and domestic data revenues. Yet, bottom line managed to register a flattish growth attributable to improved EBITDA margin.

YTD. Revenue moderated by 7% as the weaknesses in Voice (-12%), Internet (-4%) and Others (-17%) were more than sufficient to offset the expansion in Data (+2%). In turn, core earnings fell by 2% to RM797m. If 1Q19’s wholesale roaming discount (RM60m) is excluded, core PAT actually gained 6% thanks to improved efficiency.

Cluster performance.

unifi and Streamyx. Added 97k unifi subs in 3Q20 elevating total base to 1.6m, representing 50% take up rate on the back of newly-defined 3.3m high-speed broadband ports. ARPU was lower at RM148 (-RM2 QoQ). Copper broadband quarterly churn quickened QoQ to 60k subs vs. 2Q20’s 18k. However, ARPU trended higher by RM2 QoQ to RM92.

2020 Guidance. EBIT is expected to be RM1.3bn-RM1.5bn (previously >RM1bn)

Forecast. Tweak projections based on the deviations above. In turn, FY20-22 EPS are raised by 18%, 10% and 8%, respectively.

Reiterate BUY call on the back of higher DCF-derived TP of RM5.97 (from RM5.22) with WACC of 7.8% (after updating beta, previously 7.5%) and TG of 0.5%. 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 JENDELA and 5G airwaves.

Source: Hong Leong Investment Bank Research - 26 Nov 2020