TM’s FY20 core PATAMI of RM991m (-1% YoY) met expectations on the back of effective cost savings measures despite top line’s drag amidst this challenging period. Unifi recorded a record-breaking quarterly net adds of 128k along with ARPU uplift, more than sufficient to offset Streamyx’s attrition. FY21 guidance implies growth on the back of prudent CAPEX. After raising FY21-22 estimates and TG, our DCF-derived TP is higher at RM7.88. Maintain BUY.

Met expectations. 4Q20 core net profit of RM194m (-33% QoQ, +2% YoY) brought FY20’s sum to RM991m (-1% YoY) which matched our and consensus estimates at 98% and 97%, respectively. FY20 core earnings were arrived after excluding borrowing forex gain of RM28m, settlements and placements forex loss of RM7m.

Dividend. Declared final interim single-tier DPS of 7.5 sen (4Q19: 10 sen) which goes ex on 11 Mar. YTD DPS amounted to 14.3 sen (FY19: 10 sen).

QoQ. Top line gained 12% as expansions in Others (+61%), Data (+10%) and Internet (+1%) were more than sufficient to offset the decline in Voice (-3%). However, core net profit recorded a 33% contraction mainly due to higher costs associated to government projects.

YoY. Sales softened by 1% as the gains from Others (+10%) and Internet (+5%) were entirely neutralized by (Voice (-10%) and Data (-7%). Yet, bottom line managed to inch up by 2% attributable to improved EBITDA margin.

YTD. Revenue moderated by 5% as all products saw weaker contributions led by Voice (-12%), followed by Others (-10%), Internet (-2%) and Data (-1%). Nonetheless, core earnings fell by a smaller quantum of 1%. If 1Q19’s wholesale roaming discount (RM60m) is excluded, core PAT actually gained 5% thanks to improved efficiency.

unifi and Streamyx. All-time high quarterly net-add of 128k unifi subs in 4Q20 lifted total base to 1.8m while ARPU was higher at RM153 (+RM5 QoQ) thanks to device bundling which will enhance customer loyalty. Copper broadband quarterly churn was 59k subs QoQ. However, ARPU trended steady QoQ at RM92.

FY21 guidance. (1) Revenue growth: flat to single digit growth; (2) EBIT: higher than RM1.6bn; and (3) Capex: 14%-18% of revenue.

Forecast. Update model using latest operating data points. In turn, FY21-22 earnings are raised by 9% and 12%, respectively. Reiterate BUY call on the back of higher DCF-derived TP of RM7.88 (from RM5.97) with WACC of 7.8% and TG of 0.8% (previously 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 perceived to be the critical fundamental building block of government’s 5G rollout under MyDigital initiative. Furthermore, TM is well positioned as the sole Malaysian Cloud Service Provider when sovereignty is the utmost important in dealing with government’s data.

Source: Hong Leong Investment Bank Research - 25 Feb 2021