• Operationally, 2020 EBIT of RM1.61bn was within our expectations; however, TM’s 2020 core net profit came in 5% short due to higher taxation
• For 2021, management guided for flat to single-digit growth in revenue, over RM1.6bn of EBIT and capex-to-revenue ratio of 14-18%
• Maintain BUY with a higher PT of RM7.20. We like TM for its extensive fibre infrastructure, ample business opportunities under MyDIGITAL initiatives, positive earnings outlook and attractive valuation

2020 EBIT was within our expectations, core net profit affected by taxation

Despite a higher revenue, TM’s 4Q20 EBIT fell by 20% qoq due to a seasonal increase in staff costs, and higher device and project costs. Its core net profit fell by 33% qoq to RM194m due to a higher effective tax rate of 27.8% (vs 22.6% in 3Q20). Cumulatively, TM’s 2020 revenue of RM10.8bn and EBIT of RM1.61bn were within our expectations but its core net profit of RM991m (-1% yoy) came in 3% below the market’s and 5% short of our expectations due to higher taxation.

Unifi Business Performed Well in 4Q20

In 4Q20, TM gained 128k Unifi subscribers to 1.78m and achieved higher Unifi ARPU of RM153 (from RM148 in 3Q20). Notably, this is TM’s first increase in Unifi ARPU since 2016. The strong Unifi business performance was attributable to encouraging demand for its mesh WiFi, android boxes and higher convergence penetration.

For 2021, management guide for over RM1.6bn EBIT, 14-18% capex-to-revenue

Management guide for flat to low single-digit growth in its 2021 revenue and EBIT of over RM1.6bn (compared to RM1.61bn in 2020). The 2021 capex-to-revenue ratio is expected to be between 14-18%. We were surprised by the relatively low capex guidance, considering its ambitious plan to roll out more fibre network.

Maintain BUY With a Higher Price Target of RM7.20

We raise our 2021-22E earnings forecasts by 0.2% to 3.0% after incorporating the 2020 financial statements and its capex guidance. In tandem, we raise our DCFderived 12-month price target to RM7.20 (from RM6.75) largely attributable to the downward revision in our capex estimate to 18% of revenue. Maintain BUY. We continue to like TM for its extensive fibre network, ample business opportunities under the government’s MyDIGITAL initiative and attractive valuation. Key risk: weaker-than-expected results, major changes in MyDIGITAL initiative.

Source: Affin Hwang Research - 25 Feb 2021