TdC’s 9M20 core net profit of RM252m (+1% YoY) matched ours and consensus expectations. All products expanded YTD and yielded a marginally higher core earnings as efficiency gain was offset by the normalization of effective corporate tax rate. Regional associates contributed a total of RM13m (+18% YoY) in 9M20. Cyberjaya Data Centre is on track for completion by year end and will be launched in 1Q20. Reiterate BUY with higher SOP-derived TP of RM15.64.

Within expectation. 3Q20 core net profit of RM93m (+9% QoQ, +4% YoY) brought 9M20 sum to RM252m (+1% YoY), which matched HLIB and consensus, accounting for 77% of full year estimates, respectively. 9M 20 one-off adjustments include net bad debt recovered (-RM164k), forex loss (+RM6m), doubtful debts (+RM10m) and PPE written off (+RM2m).

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

QoQ. Top line gained 2% supported by expansions in all products, led by Data Centre (+6%), followed by Voice (+4%) and Data (+1%). In turn, core net profit gained 9% mainly due to lower effective corporate tax rate (3Q20: 27% vs 2Q20: 29%) more than sufficient to offset the lower EBITDA margin (in the absence of more lucrative one -off recurring contracts) and increase in D&A (+7%).

YoY. Turnover grew 11% supported by higher contributions from Data (+12%), Data Centre (+13%) and Voice (+1%). Core PATAMI was 4% higher at RM93m attributable to the higher superior cost discipline (adjusted EBITDA margin +4ppt) despite higher D&A (+12%) and effective tax rate (3Q20: 27% vs 3Q19: 2%).

YTD. Sales strengthened by 11% led by Data (+12%) and followed by Data Centre (+9%) while Voice was flat. Core earnings were marginally higher by 1% to RM252m as efficiency gain was offset by higher effective tax rate.

Segmental performance.

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM13m (+18% YoY) to 9M20’s bottom line.

Retail. 30k behind 1m home-passed target by year end due to MCO.

Data Centre. Both Cyberjaya (2MW capacity) and Thailand DC (1MW capacity) are expected to be operational by year end. Although there is no pre-sales, customer pipeline is robust.

Forecast. Unchanged as results are in line

Reiterate BUY with higher SOP-derived TP of RM15.64 (previously RM12.38) after altering domestic telco business’ TG from 2.0% to 2.5%, while WACC remains at 7.5% (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 - 27 Nov 2020