• Overview. 3Q19 core profit slipped 31% yoy and 13% qoq on higher opex from device subsidy (ie. iPhone 11 launching) and increase in depreciation charge due to MFRS16, as well as new digitalisation and fibre investments.

• Key highlights. While service revenue growth remains challenging, ARPU for prepaid remained steady despite migration from pre- to postpaid gaining pace (net adds: 128k from 2Q). Management noted better data monetisation for prepaid.

• Against estimates: inline. 9M19 core profit fell 23% while EBITDA margin shrank 3ppts to 42% on combination of lower wholesale revenue and higher opex from new investments. Overall, core profit was 74% and 73% of ours and consensus estimates respectively.

• Dividend. A 5.0 sen DPS was declared implying 109% payout and brings 9M19 DPS to 15 sen.

• Outlook. Investments in digitalisation and fiber drove up opex in 2019 and is expected to remain elevated in the near-term amidst plans to grow presence in the convergence and Enterprise segments.

• Our call. HOLD with an RM5.00 DCF-derived TP. The resilient growth in operating FCF is encouraging but we reckon execution risk to its growth strategy is inherent amidst a competitive landscape. Revisit at lower levels

Source: BIMB Securities Research - 29 Oct 2019