Results

• Improved earnings – TM’s 2Q20 reported net profit more than doubled YoY to RM275m while normalized PATAMI rose 18% YoY to RM268m due to ongoing cost optimization which saw lower opex and depreciation.

• Revenue decline – 2Q20 revenue declined 6% YoY to RM2.59b as revenue from all segments decreased except Data (+4% YoY to RM704m). Performance of other segments: Voice (-13% YoY to RM572m), Internet (-5% YoY to RM921m) and Others (-15% YoY to RM395m).

• Better QoQ – TM’s normalised PATAMI of RM268m grew 11% QoQ despite flat revenue QoQ. Revenue growth from Voice (+5%) and Data (+11%) offset the decline in Internet (-1.6%) and Others (-10.6%).

• Steady margins – Normalised PATAMI margin stood at 10% vs 9% in 1Q20 while EBITDA margin was slightly higher at 37% vs 36% in 1Q20 due to ongoing cost optimization efforts.

• Overturned subscriber churn – Total broadband subscribers increased 3% YoY and 2Q QoQ to 2.23m as UniFi subscribers grew 16% YoY and 4% QoQ to 1.55m to cushion the decline in Streamyx subs which decreased 18% YoY and 3% QoQ to 0.68m.

• Lower ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband declined to RM90 (vs RM91 in 1Q20) while ARPU for UniFi inched lower to RM150 from RM153 in 1Q20 as new customers subscribed at lower entry prices.

• Higher gearing – Net debt/EBITDA increased to 1.76x (from 1.5 in 1Q20) amid lower cash reserves of RM4.27b vs RM4.5b in 1Q20 due to slower payment collection as branches were closed during MCO and allowances on late payment.

Earnings Outlook/Revision

• Within expectation – 1H20 normalized PATAMI achieved 43% of our full year estimate six months’ revenue accounted for 44% of our FY20 forecast.

• Estimates maintained – We are keeping our revenue and EPS forecast for FY20. We expect earnings to improve in 2H20 as TM resumed Unifi installation in late-April with other businesses also expected to pick up post-MCO. Earnings improvement will come from higher demand for fixed broadband as more people work from home while its mobile division has turned around.

• Dividend – TM announced an interim dividend of 6.8 sen per share, which is the maximum payout under its dividend policy of 40%-60% of reported PATAMI.

Valuation & Recommendation

• Upgrade to HOLD from SELL with an unchanged target price of RM3.97 (based on DCF) following the selldown in share price.

Source: JF Apex Securities Research - 28 Aug 2020