• 3Q18 EBITDA and core earnings advanced 6.3% and 46.9% qoq with better performance in all segment except Celcom and NCell.

• On YTD basis, EBITDA and core earnings fell -9.5% and -34.4% and were inline with our estimates at 74.5% but ahead of consensus at 84.1%.

• We believe its core operation would continue to grow driven by higher subscriber base, cost optimisation and rising data demand in regional market.

• Upgrade to BUY with unchanged TP of 4.60. We expect earnings growth would materialise in the longer term albeit currency volatility is an inherent risk in the near term.

Recovery driven by Robi and Dialog

3Q18 EBITDA and core earnings advanced 6.3% and 46.9% qoq amidst better performance across all segment except Celcom and NCell (Table 2). Earnings recovery was mainly due to higher subscriber base, better ARPU, and stronger local currency for both Robi (Bangladesh) and Dialog (Sri Langka).

Weaker YTD EBITDA but flat on constant currency basis

On the flipside, EBITDA and core earnings fell -12.4% and -37.4% yoy. This led to 9M18 EBITDA and core earnings declining -9.5 and -34.4% respectively. The poor results were mainly due to forex translation loss and new accounting standard adjustments. On constant currency basis, 9M18 EBITDA would be flat as the underperformance of Celcom is offset by Robi and Dialog (Table 3). Celcom was impacted by a one-off employee restructuring cost.

Prospects look promising

We believe Robi and Dialog remains its growth driver as subscriber base has grown to 46.7m and 13.4m in 3Q18 (4Q17: 42.9m, 12.8m). Coupled with cost optimization at Celcom, these would translate to better yield overall. Also, low smartphone and data penetration in regional markets would provide further growth to its revenue base.

Upgrade to BUY and maintain TP of RM4.60

We upgrade our call to BUY and maintain our TP of RM4.60. The recent sell down could be due to the concerns over its exposure in regional currencies. While translation risk is unavoidable, we believe its regional growth outlook remains largely intact in the longer term albeit near term impact from currency volatility is inherent.

Source: BIMB Securities Research - 26 Nov 2018