TdC’s 1H21 core net profit of RM179m (+12% YoY) matched our and consensus expectations. All products expanded YoY and yielded higher core earnings thanks to efficiency gains despite higher D&A. Data Centre growth (+77% YoY) was due to AVM consolidation since mid-Jan 2021. Regional associates contributed a total of RM10m in 1H21. AIMS data centre in Cyberjaya is completed solidifying its strategic position and contribute to long-term growth. Reiterate BUY with unchanged SOP-derived TP of RM5.61.

Within expectations. 2Q21 core PAT of RM94m (+10% QoQ, +10% YoY) brought 1H21’s total to RM179m (+12% YoY) which was in line, accounting for 46% and 48% of our and street full year estimates, respectively. Historically, 1H is seasonally the weaker half (1H20 contributed 44% FY20’s core earnings). 1H21 one-off adjustments include net bad debt recovered (-RM366k), forex gain (-RM11.7m), doubtful debts (+RM7m) and PPE disposal loss (+RM64k).

Dividend. 1H21: none vs 1H20: none. TdC usually declares DPS in the final quarter.

QoQ. Top line gained 5% as all products recorded positive contributions led by Voice (+53%), Data (+2%) and Data Centre (+1%). Excluding one-off non-recurring revenue, turnover would have been 2% higher thanks to gains from Data Centre (+3%) and Data (+2%). Subsequently, core net profit strengthened by 10% due to lower finance cost and lower effective tax rate.

YoY. Turnover grew 14% supported by higher contributions from all products: Voice (+34%), Data (+3%) and Data Centre (+77%). Data centre strength was due to AVM consolidation since mid-Jan 2021. In turn, core PATAMI was 10% higher attributable to the higher net finance income and lower corporate tax rate (26% vs 2Q20: 29%) despite higher D&A (+10%).

YTD. For the same reasons above, revenue and core earnings were higher by 13% and 12%, respectively. In terms of revenue breakdown: Voice (+10%), Data (+4%) and Data Centre (+77%).

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM10m (+15% YoY) to 1H21’s bottom line.

Outlook. AIMS data centre in Cyberjaya is completed, solidifying its strategic position and contribute to long-term growth. TdC will continue to focus on supporting the Malaysian government to achieve national telecommunication and digital economy objectives under JENDELA and MyDigital.

Forecast. Unchanged as results was in line. Reiterate BUY with unchanged SOP-derived TP of RM5.61 (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 - 30 Aug 2021