TdC’s 1Q22 core net profit of RM98m (-7% QoQ, +15% YoY) matched expectations. On a YoY basis, turnover grew 11% thanks to higher contributions from Data (+12%) and Data Centre (+13%), more than sufficient to offset Voice contraction (-9%). In terms of segment, all markets recorded positive trajectories led by Retail, followed by Wholesale and Enterprise. Regional associates contributed a total of RM6m (+18% YoY) in 1Q22. TdC is cautiously optimistic of growth prospects with the reopening of the nation as Malaysia transitions into endemicity Reiterate BUY with unchanged SOP-derived TP of RM5.37.

Within expectations. 1Q22 core PAT of RM98m (-7% QoQ, +15% YoY) was in line, accounting for 23% of our and street full year estimates. 1Q is usually a seasonally weaker quarter (1Q21 accounted for 22% of FY21’s core net profit). 1Q22 one-off adjustments include net bad debt recovered (-RM102k), forex loss (+RM4m), net allowance for doubtful debts (+RM3m), PPE disposal gain (+RM69k) and PPE written off (+RM1m).

Dividend. None (1Q21: none). TdC usually declares dividend in the final quarter.

QoQ. Top line was flat as the expansion in Data (+5%) was neutralized by the declines in Data Centre (-17%) and Voice (-2%). Excluding one-off non-recurring revenue, turnover growth was actually higher at 3% as Data Centre was boosted by one-off contracts worth RM13m in 4Q21. However, core net profit eased by 7% due to (i) lower contribution from high-margin one-off non-recurring contact revenues; (ii) lower share of profit from associates; and (iii) lower interest income.

YoY. Turnover grew 11% supported by higher contributions from Data (+12%) and Data Centre (+13%), more than sufficient to offset Voice contraction (-9%). In turn, core PATAMI was 15% higher attributable to (i) higher revenue; (ii) higher share of profit from associates; and (iii) lower effective corporate tax rate of 26% (vs 1Q21: 27%).

Regional associates. CMC (Vietnam) and Symphony (Thailand) were profitable and contributed RM6m (+18% YoY) to 1Q22’s bottom line.

Outlook. TdC is cautiously optimistic of growth prospects with the reopening of the nation as Malaysia transitions into endemicity. Network availability and stability and employee/stakeholder wellbeing remains priority. It remains vigilant on developments in both the domestic and global economy as well as geopolitics and the associated risks. It continues to expand network to support broadband and digital economy objectives. At the same time, it continues to innovate product and services to seize opportunities in the data, cloud and data centre markets locally and regionally.

Forecast. Unchanged as results was in line.

Reiterate BUY with unchanged SOP-derived TP of RM5.37 (see Figure #2) with WACC of 8.2% 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 2022