TdC’s 1Q21 core net profit of RM85m (-24% QoQ, +15% YoY) matched our and consensus expectations. Except Voice, Data and Data Centre expanded YoY and yielded higher core earnings thanks to efficiency gain despite higher D&A and effective corporate tax rate. Regional associates contributed a total of RM5m in 1Q21. Data Centre growth (+61% QoQ, +77% YoY) was due to AVM consolidation since mid-Jan. Reiterate BUY with unchanged SOP-derived TP of RM16.88.

Within expectations. 1Q21 core net profit of RM85m (-24% QoQ, +15% YoY) was in line, accounting for 22% and 23% of our and street full year estimates, respectively. Historically, 1Q is seasonally the weakest quarter (1Q20 contributed 20% FY20’s core earnings). 1Q21 one-off adjustments include net bad debt recovered (-RM254k), doubtful debts (+RM2.3m), forex gain (-RM8.3m) and PPE disposal loss (+RM64k).

Dividend. None (1Q20: none). TdC usually declares dividend in the final quarter.

QoQ. Top line gained 5% solely driven by data centre (+61%) which was more than sufficient to offset the declines in Data (-2%) and Voice (-16%). Data centre strength was due to AVM consolidation since mid-Jan. The weakness in Data was attributable to expiry of wholesale contracts which overwhelmed the growths in enterprise and retail. However, core net profit fell by 24% due to higher (i) D&A +2%; (ii) net finance cost +39%; and (iii) higher effective corporate tax rate of 27% vs 4Q20’s 15%

YoY. Turnover grew 13% supported by higher contributions from Data (+5%), Data Centre (+77%), which was more than sufficient to offset the decline in Voice (-14%). In turn, core PATAMI was 15% higher attributable to the superior cost discipline (adjusted EBITDA margin +2ppt) despite higher D&A (+9%) and effective tax rate (1Q20: 22%)

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM5m (-8% YoY) to 1Q21’s bottom line.

Outlook. Network availability and stability remains top priorities, TdC will continue to focus on supporting the Malaysian government to achieve national telecommunication and digital economy objectives under JENDELA and MyDigital. This will be achieved by not only strengthening and improving its existing domestic fibre network infra and expanding coverage footprint, but also ensuring that it continues to provide high quality, meaningful solutions and services across all segments. This is demonstrated by the recent acquisition of a 60% stake in AVM Cloud and completion of the upcoming data centre in Cyberjaya, both of which are aimed at solidifying its strategic position and contribute to long-term growth.

Forecast. Unchanged as results was in line. Reiterate BUY with unchanged SOP-derived TP of RM16.88 (see Figure #2) with WACC of 8% and TG of 1.5% 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 - 31 May 2021