• Maintain NEUTRAL, new MYR5.10 DCF TP (from MYR5.60), 4% upside with c.4% recurring yield. Results were in line with routine growth in the retail and wholesale segments while enterprise contribution eased further. We continue to see the lack of a clear longer-term growth narrative trumping mid-term capital management aspirations. Valuations are fair following the recent share price retreat.

• Within expectations. 2Q24 core PATAMI (+1% QoQ, +12.2% YoY) brought 1H24 core PATAMI to MYR215.6m (+5.5% YoY), at 48% of our forecast and 46% of consensus’. Lower opex contributed to stronger EBITDA sequentially, although this was partially offset by weaker associate showing. Continuing on its balance sheet optimisation programme, a decent special interim DPS of 18.93 sen has been declared, payable on 24 Sep (2Q23: 16.23 sen).

• Retail and wholesale still core drivers; enterprise slips further. The retail and wholesale segments sustained their double-digit growth trajectories YTD. The re-pricing of fibre broadband (FBB) offerings (early April) resonated well with customers, with steady ARPU development, while subs growth continued to be bolstered by the expansion of its fibre footprint (currently 1.675m fibre premises passed). That said, the decline in recurring cloud and other solutions revenue (AVM Cloud) accelerated sequentially, with cyclicality and lower usage cited as reasons.

• Associate contributions fell QoQ due to one-off revenue booked for its 30% data centre (DC) associate (AIMS) in the preceding quarter. Management said co-location demand remains strong with firm utilisation across sites.

• Prospects and outlook. We see the absence of a clear longer-term growth narrative for the group balancing out the excitement from mid-term capital management prospects. We do not rule out opportunistic M&As in the medium term. Note that the strengthening MYR would also weigh on its global wholesale business to some extent.

• ESG and risk factors. While we make no changes to our forecasts, we raise our risk premium on the stock to reflect heightened competition in the retail market. Key risks include stronger/weaker-than-expected earnings and/or margins, and higher/lower-than-expected capex. Our ESG score is lowered to 2.9 (from 3.0), as TDC is the only telco within our coverage universe that has yet to capture Scope 1-3 emissions (disclosures to be made this year). We note the growing energy intensity of its DC business (under AIMS) which is undergoing rapid expansion, although disclosure standards currently exclude that of associates.

Source: RHB Research - 27 Aug 2024