Results

• Steady earnings – TM’s 4Q20 reported net profit of RM259m compared to a net loss of RM51m a year ago. Excluding the impairment in 4Q19, normalized PATAMI climbed 2% YoY to RM194m.

• Revenue declined – 4Q20 revenue slipped 1% YoY to RM3.0b due to YoY declines from Voice (-11% to RM617m) and Data (- 7% to RM787m) while Internet grew 5% to RM949m and Others increased 10% to RM648m.

• Lower QoQ earnings – TM’s normalised PATAMI of RM194m dropped 33% QoQ despite higher revenue (+12% QoQ to RM3.0b) as operating costs outgrew revenue. Direct cost increased 29% QoQ to RM896m while other opex rose 20% QoQ to RM491 due to customer projects for both enterprise and public sectors are nearing completion.

• Subscriber growth – Total broadband subscribers increased 7% YoY and 3% QoQ to 2.33m as UniFi subscribers grew 23% YoY and 8% QoQ to 1.78m to cushion the decline in Streamyx subs which decreased 25% YoY and 10% QoQ to 0.56m.

• Stable ARPUs – TM’s Average Revenue Per User (ARPU) for Streamyx broadband declined was unchanged QoQ at RM92 while ARPU for UniFi climbed to RM153 vs RM148 in 3Q20.

• Steady gearing – Net debt/EBITDA decreased to 1.41x (from 1.5 in 3Q20) while cash reserves declined to RM4.15b vs RM4.68b in 3Q20.

Earnings Outlook/Revision

• Slightly below expectation – FY20 normalized PATAMI achieved 91% of our full year estimate twelve months’ revenue accounted for 102% of our FY20 forecast.

• Estimates maintained – We are keeping our forecasts for FY21. Earnings momentum will be sustained by strong demand for fixed broadband and rollout of the MyDIGITAL blueprint.

• Key beneficiary – TM is a key beneficiary of MyDIGITAL given its infrastructure of fibre network and submarine cables as well as demand for data centres and 5G rollout.

• Improved dividend – TM declared second interim dividend of 7.5 sen, taking total dividend for 2020 to 14.3 sen, which translates into a yield of 2.3%.

• Management guidance – The management has introduced its 2021 guidance: - Flat to low single digit revenue growth - EBIT higher than RM1.6b (2020 level) - Capex/Revenue of 14% to 18%

Valuation & Recommendation

• Downgrade to HOLD from BUY with a higher target price of RM6.64 (from RM5.37) due to the recent run-up in share price. We lifted our DCF-derived target price after tweaking our assumptions for capex and EBITDA to reflect the company’s progress in cost optimisation.

Source: JF Apex Securities Research - 24 Feb 2021