• 3Q18 core earnings grew 8% qoq owing to EBITDA maring expansion and lower depreciation charge but fell -7% yoy on lower service revenue.

• Overall, 9M18 core earnings slipped -3% yoy albeit broadly inline with ours and consensus estimates at 78% respectively.

• A third interim DPS of 5sen was declared, implying 77% payout.

• Maintain HOLD with an unchanged DCF-derived RM5.35 TP

Significant decline in prepaid offset postpaid growth

Postpaid subscriber base continued to grow (+85k qoq, +250k yoy) and led to higher postpaid revenue (+2% qoq, 3% yoy) as ARPU held steady at RM93. However, gains were offset by weaker prepaid revenue (-0.4% qoq, -10% yoy) on the back of significant drop in prepaid subscriber base (-108k qoq, -515k yoy) amidst intense price competition. Overall, mobile revenue inched up 0.7% qoq but fell -3.5% yoy.

Cost optimization enhanced core EBITDA margin

On quarterly basis, 3Q18 core EBITDA margin expanded by 1.4 ppt qoq contributed by lower traffic commission and other direct cost as part of its continuous cost optimization efforts. Overall, 9M18 core EBITDA margin remains firm despite revenue posting a -4% yoy drop. The 9M18 core earnings fell 3% and were inline with ours and consensus estimates at 78% respectively.

Cautious outlook ahead

Management expects more challenges ahead arising from termination of UMobile’s RAN sharing agreement, repricing of its fibre broadband packages, and the SST reintroduction which exacerbates the impact from intense competition. Still, it is committed to grow within the fixed home broadband space after securing a new access agreement with TM in Aug 2018.

Maintain HOLD and TP of RM5.35

We maintain our HOLD recommendation with TP of RM5.35 amidst its uninspiring outlook. Nevertheless, it still delivers stable DPS of 20sen despite high capex commitment and declining service revenue.

Source: BIMB Securities Research - 19 Oct 2018