Results

• 9M14 sales of RM13.9bn was translated into a disappointing core net profit of RM1.79bn, only accounting for 67.7% and 68.5% of HLIB and consensus FY forecasts, respectively.

Deviations

• Celcom results were weaker than expected due to prolonged IT related issues.

Dividend

• None (3Q13: none).

Highlights

Celcom: YTD sales contracted 4% yoy to RM5.79bn as subscriber base churned by 195k qoq ended with 13.2m . Weakness was due to ongoing IT transformation limiting the introduction of competitive new products. Data revenue inched up 20% yoy while small screen data grew at an even more encouraging rate of 41%.

XL: Sales expanded 11% yoy as all product segment registered healthy growths led by data with 43% yoy and followed by VAS, voice and SMS with 42%, 4% and 4% yoy, respectively . Data’s contribution to overall revenue edged up 5-ppt yoy to 28% as traffic increased 135.6% yoy with total data users reached 31.2m or 53% of the total base of 58.3m. EBITDA margin declined from 40% to 36% due to bleeding Axis. Expected to be EBITDA neutral by 1Q15.

Dialog: YTD sales grew 6% yoy with data and voice revenues expanded 55% and 4% yoy, respectively. Continue to grow Pay TV business as subscribers increased to 410k.

Robi: YTD revenue and EBITDA grew 6%, 10%, respectively despite heightened competition. YTD EBITDA margin improved by 1.7-ppt to 39.9%.

Smart: YTD revenue, EBITDA and PAT grew 37%, 74% and 197%, respectively. YTD data revenue growth of 119% with data contributing 21% of total revenue.

Catalysts

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

Risks

• Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

• Cut Celcom’s forecast and update operational data which revised FY14-16 EPS lower by 10.7%, 10.5% and 14.3% respectively.

Rating

HOLD , TP: RM7.59

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 although SOP-derived TP was raised by 9.7% from RM6.92 to RM7.59 as valuations were rolled forward to FY16 and imputing higher consensus TP for Axiata’s associates.

Source: Hong Leong Investment Bank Research - 25 Nov 2014