FY20 CNP of RM991m (-1%) came within but dividends missed. The Group could benefit from MyDigital through leasing its fibre network for 5G and Cloud applications, as well as growing adoption of cloud services/data centre usage, possibly attributing to management’s FY21 guidance for low single-digit revenue growth. Upgrade to OP from MP with unchanged DCF-driven TP of RM6.85 (WACC: 8.3%, TG: 1.5%).

FY20 within. FY20 CNP of RM991m came within our and consensus expectations both at 97%. FY20 top-line also came in within our estimate at 104%. A DPS of 7.5 sen was declared, bringing FY20 DPS to 14.3 sen, below our FY20E DPS of 15.5 sen, as the pay-out was lower than expected.

YoY, FY20 revenue fell by 5% to RM10.8b as TM’s revenues across the board fell, with Voice falling the most (-11.5%) as demand for traffic minutes tapered off. Internet and data revenues were relatively shielded with falling 1.9% and 0.5%, respectively. Internet revenue dipped slightly as Streamyx faced diminishing subscribers and ARPU from migration to Unifi, which saw ARPU remaining at RM153. Normalised EBIT fell by 5% in tandem with revenue trend. PBT rose by 38%, boosted my lower interest expense as total borrowings fell from RM9b to RM8b.

QoQ, 4QFY20 revenue rose to RM3b (+12%) mainly from growth in Data (+10%) and “Others” (+61%), comprising of higher customer projects & retail device revenue. However, EBIT fell 13% on higher OPEX of RM2b (+19%) due to higher direct costs (+30%), which consists of devices sold. Consequently, Core CNP fell by 33%.

MyDigital. TM is expected to benefit from MyDigital in two main ways. Firstly, TM Wholesale is expected to benefit from leasing its extensive fibre network for the 5G rollout and US tech companies’ usage for data centres (DC). Secondly, TM One stands to benefit from greater adoption of cloud services and DC usage. As the only home-based Cloud Service Provider (CSP), TM has an edge over Google, Microsoft and Amazon in housing cloud data in Malaysia, a crucial requirement to some users of cloud services and DCs.

FY21 guidance. Management guided flat to low single-digit revenue growth, signalling a turnaround from the previous years with single-digit declines. With continued cost optimisation, we anticipate FY21E EBIT to register close to RM1,672m, in line with management’s guidance of greater than RM1.6b. Despite being involved with MyDigital, TM’s capex/revenue is expected to be 14%/18%, far from the 20%/30% in previous years, as management prioritizes ROI and efficiency.

Post-results, we maintain FY21E CNP of RM1.1b and introduce FY22E CNP of RM1.1b (+2%), a conservative estimate. Decrease FY21E DPS to 16.5 sen (from 18.0 sen) on 55% payout with FY22E DPS of 16.5 sen on flat FY22 earnings growth. Should profitability and MyDigital-related earnings’ visibility improve, we may raise our estimates.

Upgrade to OUTPERFORM from MARKET PERFORM with unchanged DCF-TP of RM6.85. We view the recent share price correction as an opportune time to accumulate, as TM’s continued strive for profitability, coupled with its exposure to fibre broadband, 5G, cloud services, and data centres, provide growth opportunities. WACC and TG assumptions of 8.3% and 1.5%, respectively, remain intact. Our TP implies an EV/EBITDA of 7.4x, +0.5 SD above its 3-year mean of 6.6x.

Source: Kenanga Research - 25 Feb 2021