Results

1H14 revenue of RM9.25bn was translated into a core net profit of RM1.25bn matching expectations or accounting for 47.5% of HLIB’s full year estimates but shy of consensus’ by 7.0%, if annualized.

One-off adjustments: RMm FOREX Tax Write-off Others Total 2Q13 +27 -55 +23 0 -5 1Q14 -51 0 0 0 -51 2Q14 +172 0 0 +10 +182

Deviations

In line.

Dividend

As expected, declared an interim single tier tax exempt dividend of 8 sen per share (2Q13: 8 sen).

Highlights

Celcom: YTD sales contracted 3% yoy to RM3.86bn despite a larger subscriber base which added 152k subs qoq to 13.4m. Weakness was mainly due to loss of revenue opportunities arising from ongoing IT transformation, network hiccups and suspension of promotion via short codes. Data revenue inched up 19% yoy while SMS revenue continued to be cannibalized by OTT players.

XL: YTD sales expanded 12% yoy as all product segment registered healthy growths led by data with 45% yoy and followed by VAS, voice and SMS with 20%, 5% and 5% yoy, respectively. This also marked the first full quarter consolidation of Axis’ financials. Data’s contribution to overall revenue edged up 6-ppt yoy to 28% as traffic increased 158% yoy with total data users reached 32.2m or 51% of the total base of 62.9m.

Dialog: YTD sales grew 7% yoy with data and voice revenues expanded 54% and 7% yoy, respectively. Continue to grow Pay TV business as subscribers increased to 390k.

Robi: YTD revenue, EBITDA and PAT grew 7%, 14% and 8%, respectively despite heightened competition. Strong traction in data revenue (>100% YTD) after launch of 3G services.

Smart: YTD revenue, EBITDA and PAT grew 35%, 78% and 81%, respectively. YTD data revenue growth of 115% with data contributing 19% of total revenue.

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 #9).

Source:Hong Leong Investment Bank Research - 28 Aug 2014