TdC’s FY20 core net profit of RM364m (+3% YoY) exceeded our and consensus expectations. Except Voice, Data and Data Centre expanded YTD and yielded marginally higher core earnings as efficiency gain was offset by normalization of effective corporate tax rate. Regional associates contributed a total of RM18m in FY20. Cyberjaya Data Centre is slightly delayed by lockdown but expected to be ready soon. Reiterate BUY with higher SOP-derived TP of RM16.88.

Beat expectations. 4Q20 core net profit of RM112m (+20% QoQ, +7% YoY) brought FY20 sum to RM364m (+3% YoY), which exceeded HLIB and consensus, accounting for 111% of full year estimates, respectively. The outperformance was attributable to the all-time high core EBITDA margin of 51%. FY20 one-off adjustments include net bad debt recovered (-RM223k), forex loss (+RM16m), doubtful debts (+RM13m), PPE written off (+RM2m), PPE disposal gain (-RM0.1m), Covid-19 donation (+RM2.7m) and construction deposit impairment (+RM2.4m).

Dividend. Declared ordinary and special interim tax exempt (single tier) DPS of 12.50 sen (4Q19: 9.95 sen) and 20.60 sen (4Q19: 19.08 sen), respectively and both will go ex on 16 Mar. YTD DPS amounted to 33.1 sen vs FY19’s 29.03 sen.

QoQ. Top line gained 2% supported by Data (+2%) and Data Centre (+3%) while Voice was flat. Core net profit gained at a quicker pace of 20% thanks to superior cost management and lower effective corporate tax rate (4Q20: 15% vs 3Q20: 27%).

YoY. Turnover grew 7% supported by higher contributions from Data (+7%), Data Centre (+7%), more than sufficient to offset the decline in Voice (-8%). In turn, core PATAMI was 7% higher attributable to the higher superior cost discipline (adjusted EBITDA margin +13ppt) despite higher D&A (+6%) and effective tax rate (4Q19: 6%).

YTD. Sales strengthened by 10% led by Data (+11%) and followed by Data Centre (+9%) while Voice moderated 2% in line with general industry trend. Core earnings were marginally higher by 3% to RM364m as efficiency gain was offset by higher effective tax rate.

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM18m (+22% YoY) to FY20’s bottom line.

Data Centre. Despite the delay due to pandemic lockdown, Cyberjaya (2MW capacity) is expected to be ready in coming months.

Forecast. Update model based on the deviation mentioned above. As a result, FY21- 22 EPS are revised higher by 9% and 13%, respectively. Reiterate BUY after lifting our SOP-derived TP from RM15.64 to RM16.88 (see Figure #2) reflecting earnings upward revision, updated WACC of 8% (previously 7.5%) and TG of 1.5% (previously 2.5%) for domestic telco business. 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 - 1 Mar 2021