• Overview. Excluding RM125m impairment on fixed network assets, 2Q19 core profit (pre-MFRS 16) grew 26% yoy but fell 28% qoq on variance in direct cost (domestic roaming, content and etc).
• Key highlights. On yoy basis, lower domestic roaming (Unifi mobile) and content cost (Unifi TV) contributed towards overall cost saving. Nevertheless, the absence of one-off Unifi cost saving in 1Q19 and uptick of staff cost pushed up operating expense on qoq basis.
• Against estimates: below. 1H19 core profit (pre-MFRS 16) trailed our estimates at 41% but were inline with consensus at 53%. We pare down 2019-21F estimates by 11-22% after reviewing our cost assumptions.
• Outlook. Management highlighted its plan to boost mobile in order to extract better synergy from the fixed broadband infrastructure. However, we reckon this would trigger a price war within the mobile space and could further deteriorate data yield.
• Our call. Downgrade to HOLD with an RM3.75 DCF-derived TP. We stand guarded over its outlook amidst the new management’s aim which seemingly to be focused on growing within the mobile space. Sell on strength.

Source: BIMB Securities Research - 29 Aug 2019