• Overview. 2Q19 core profit (pre-MFRS 16) came in flat yoy as revenue weakness was offset by efficient cost management. On qoq basis, core profit grew 12% aided by higher postpaid subs from revamped PhoneFreedom 365 (PF365). 
• Key highlights. 2Q19 saw both postpaid and prepaid subs respectively recorded 71k and 42k net adds bringing total subs to 11.4m and blended ARPU back to RM40 (1Q19: RM39).  
• Against estimates: inline. 1H19 core profit (pre-MFRS 16) were inline at 52% of estimates as weak service revenue was offset by lower interconnect rate; core EBITDA margin rose +1ppt. 
• Dividend. A 5.0 sen DPS was declared, implying 92.5% dividend payout and brings its total DPS to 9.3 sen for 1H19. 
• Outlook. Management remains focused on growing postpaid revenue by boosting usage and upgrading to higher value plans. Operating efficiency remains paramount while network upgrades are ongoing to enhance customer experience. 
• Our call. Downgrade to HOLD with RM5.00 DCF-derived TP as we believe fundamentals have been well reflected. We opine risk of the merger falling through remains high as regulatory approvals are still pending. Accumulate on dips.

Source: BIMB Securities Research - 15 Jul 2019