Results

1Q14 revenue of RM4.5bn was translated into a core net profit of RM624.0m matching expectations or accounting for 23.6% of HLIB’s full year estimates but shy of consensus’ by 10.8%, if annualized.

Deviations

In line.

Dividend

None (1Q13: None).

Highlights

Celcom: sales contracted 5% qoq and 4% yoy to RM1.9bn despite a larger subscriber base which added 150k subs qoq to 13.3m. Besides a seasonally weaker quarter, this was also due to lower device and USP revenues. Data revenue inched up 16% yoy supported by higher smartphone take-up of 35% (+2-ppt qoq) while SMS revenue fell 24%, continue to be cannibalized by OTT players. Effective tax rate was higher due to expiry of last mile benefits.

XL: revenue expanded 10% yoy as all product segment registered healthy growths led by data with 30% yoy and followed by VAS, voice and SMS with 19%, 3% and 2% yoy, respectively. Data’s contribution to overall revenue edged up 2-ppt yoy to 26% as traffic increased 176% yoy with total data users reached 37.5m or 55% of the total base of 68.5m. Smartphone users grew significantly by 33.3% qoq, reaching 13.6m users or 20% of the total base.

Dialog: sales grew 7% yoy with data and voice revenues expanded 57% and 7% yoy, respectively. Continue to grow Pay TV business as subscribers increased to 356k. Partnership with Estisalat to offer eZ Cash service to combined 12.7m subscribers.

Robi: revenue and EBITDA grew 8% and 14%, respectively despite heightened competition. ARPU and MOU increased from enhanced usage as political stalemate unlocked.

Smart: turnover grew by 39% supported by strong growth in voice, VAS and data with 23%, 64% and >100%, respectively.

Catalysts

• Higher smartphone penetration boosting data ARPU.
• Strong growth in low penetration developing markets.
• More cost savings from collaboration with DiGi.

Risks

Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

Maintained.

Rating

HOLD, TP: RM6.92

Positives – mobile internet growth, margin improvements through collaborations/sharing, recoups prepaid tax via GST, unlock value through tower listing.

Negatives – Challenging operating environment in Indonesia, Axis to weigh down XL in the short term, OTT substituting voice and SMS, unable to monetize data.

Valuation

Maintain HOLD with unchanged SOP-derived TP of RM6.92 (see Figure #8).

Source: Hong Leong Investment Bank Research - 28 May 2014