• While we expect 2H18 performance to remain uninspiring as with 1H18, product rollouts in Aug 2018, especially its fixed broadband plans, could prove otherwise from 2019 onwards.

• The aggressive pricing strategy could see fixed broadband subs grow strongly while lower MSAP pricing could mitigate earnings dilution. At end 2Q18, home connection was c.2% of total subs.

• Still, we err on the side of caution and trimmed our 2018/19F estimates. We could be in for a surprise should fixed broadband subs gains traction.

• Maintain HOLD with a lower DCF-derived TP of RM5.35.

Looking back and…

The 1H18 performance was unexciting as service revenue continued to flat-line while input costs rose on higher marketing spend and charges from the Upfront Spectrum Assignment. Overall, 1H18 core EBITDA was just shy of RM2bn, ringing in a 1.6% yoy decline (Table 1).

…moving on

We expect 2H18 performance to be more of the same as the U Mobile RAN sharing contract runs its course to end-Dec 2018. It launched two key products in Aug 2018 – i) Zerolution 360, which is a new phone leasing program to improve subscriber retention; and ii) the pièce the résistance – new fibre broadband plans.

A worthwhile endeavour?

The Zerolution 360 could see ‘P&L gains’ (re: MFRS 15) as phone costs are capitalised owing to the leasing model but we see limited impact due to the absence of iPhones and competing initiatives such as Easy Payment Plans (EPP) by Samsung for the Samsung Note 9. The MaxisONE Fibre (MOF) have been revamped. There are now only two plans – the 30Mbps and 100 Mbps (prev: 10/30/50/100Mbps) and is targeted to the retail (Home) and Enterprise segments. Interestingly, product prices have been aggressively lowered, posing real competition to incumbents (Table 2). We believe this may have been possible due to the reduction in the Mandatory Standard Access Pricing (MSAP).

Cautious outlook

Despite the exciting product line up, we err on the side of caution and trimmed 2018/19F earnings while updating our EBITDA for MFRS 15 (Table 2). As at 2Q18, home connections are only c.2% of its entire subs (ie. 194k), increasing steadily over the years despite its then premium positioning within the broadband space.

Maintain HOLD; lower TP of RM5.35

Decent dividend yield of 3.4% in FY18 balances out concern over its outlook although the broadband could provide an upward surprise. Maintain HOLD with a lower DCF-derived TP of RM5.35 (Table 5).

Source: BIMB Securities Research - 28 Sept 2018