• Overview. 2Q19 EBITDA grew 8% qoq and 15% yoy on better cost containment at Celcom and operating leverage achieved at XL, Robi, SMART and edotco. However, gains were offset by M&A related costs, higher taxes and dep.; core PATMI fell 23% qoq and 20% yoy.

• Key highlights. Robi turned profitable after achieving economies of scale though increase in minimum tax rate on revenues partially offset the gains. NCell’s performance continue to be affected by the eroding ILD revenues while increases in Telecom Services Charge, first introduced in Jul 2018, also weighed in.

• Against estimates: below. At the EBITDA level, 1H19 performance was inline with our estimates but higher tax expense pushed core estimates down; core earnings trailed our 2019F estimates at 30%.

• Dividend. A 5sen interim DPS (1H18: 5sen) was declared, implying 100% payout based on 1H19 headline/core earnings.

• Outlook. Management noted that CAPEX spending would be lower than guided mainly on rationalisation at Celcom and Robi, possibly due to merger plans with Telenor still on track. While management expects to surpass 2019F EBITDA growth guidance, it acknowledged growing regulatory risks in Bangladesh, Nepal and Sri Lanka.

• Our call. Maintain HOLD with an RM4.25 TP. Our forecast have yet to incorporate management’s expectations of 2019F figures coming ahead of its guidance.

Source: BIMB Securities Research - 6 Sept 2019