Results

• Steady earnings – TM’s 3Q20 reported net profit grew 26% YoY to RM330m while normalized PATAMI was flat after climbing 0.4% YoY to RM289m.

• Revenue decline – 3Q20 revenue declined 6% YoY to RM2.69b as revenue from all segments decreased except Data (+7.5% YoY to RM716m). Performances of other segments: Voice (-3% YoY to RM634m), Internet (-3% YoY to RM938m) and Others (- 29% YoY to RM402m).

• Better QoQ – TM’s normalised PATAMI of RM289m grew 8% QoQ on the back of higher revenue (+4% QoQ to RM2.69b). Revenue growth from Voice (+5%) and Data (+11%) offset the decline in Internet (-1.6%) and Others (-10.6%).

• Improved margins – Normalised PATAMI margin stood at 11% vs 10% in 2Q20 while EBITDA margin was higher at 39% vs 37% in 2Q20 due to ongoing cost optimization efforts.

• Subscriber growth – Total broadband subscribers increased 2% YoY and 5% QoQ to 2.26m as UniFi subscribers grew 6% YoY and 20% QoQ to 1.65m to cushion the decline in Streamyx subs which decreased 9% YoY and 22% QoQ to 0.62m.

• Stable ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband declined to RM92 (vs RM90 in 2Q20) while ARPU for UniFi inched lower to RM480 from RM150 in 2Q20 as new customers subscribed at lower entry prices.

• Lower gearing – Net debt/EBITDA decreased to 1.5x (from 1.76 in 2Q20) amid higher cash reserves of RM4.68b vs RM427b in 2Q20 as cash collection at physical outlets improved after the MCO was lifted.

Earnings Outlook/Revision

• Above expectation – 9M20 normalized PATAMI achieved 82% of our full year estimate whilst nine months’ revenue accounted for 74% of our FY20 forecast.

• Estimates lifted – We are keeping our revenue but raising our EPS forecast for FY20 by 12%. Earnings momentum will be sustained by strong demand for broadband amidst the current pandemic situation.

• Management guidance – The management has revised its 2020 guidance:

- no change to revenue growth of low to mid-single digit % decline

- EBIT of RM1.3b to RM1.5b from over RM1b previously

- Capex/Revenue of 12% to 15% from low to mid 20s %

Valuation & Recommendation

• Upgrade to BUY from HOLD with a higher target price of RM5.37 (based on DCF) as we roll over to FY21 valuation and lower capex assumption.

Source: JF Apex Securities Research - 26 Nov 2020