Highlights

• Main objective was to introduce new CEO as well as overview of business strategy in 2015.

• Separately, we gathered that it is in the midst of tendering a 5-year 4G contract comprising of 7,000 LTE sites and packet switched core network. Should the current vendor fail to defend its incumbency, existing infrastructure are likely to be swapped after only slightly more than 1 year of operation.

• Long-serving “yellow-man” and current COO, Albern Murty will be replacing Lars-Ake Norling as CEO effective 1 April. After 8 months helming DiGi, Lars will be leading dtac, sister company in Thailand.

• Merely 3 months into 2015, several important milestones were achieved, including renewal of NFP and NSP licenses for another 10 years, launched “Let’s Inspire” brand along with new logo and introduced free music streaming service.

• Thrive on the strong demand for mobile internet (MI): 1. Expansion of high speed data network (from 32% to 45% 4G population coverage by end of FY15); 2. Increase smartphone penetration; 3. Strong demand for digital services and content; 4. Competitive priced MI packages; and 5. Always-on connectivity.

• Leveraging on cluster-based operating model (CBOM) by breaking regions into districts and further into clusters to have a more granular performance management.

• Spectrum refarming: shared that regulator is progressing and decision should be finalized in 2H15. However, it was tight-lipped on the distribution methodology and believes that MCMC will find a balance between both extremes of auction and beauty contest.

• Postpaid data consumption is below 2GB/month while prepaid’s probably still below 1GB/month.

• 2015 guidance: low to mid-single digit service revenue growth (considered the impacts from new mobile termination rates and GST impacts), sustaining EBITDA margin (~45%) and CAPEX (RM900m) similar to FY14 level.

Risks

• Irrational competition, difficulty in refarming 1800MHz spectrum for LTE, unable to monetize data revenue, government and regulatory risks.

Forecasts

• Maintained.

Rating

HOLD , TP: RM6.30

Positives

• mobile internet growth, margin improvementsthrough collaborations/sharing, capital management via business trust structure, recoup prepaid tax via GST.

Negatives

• Intense competition from U Mobile, MVNOs andOTT players.

Valuation

Reiterate HOLD with unchanged DCF-derived fair value of RM6.30 based on WACC of 6.0% and TG of 2.0%.

Source: Hong Leong Investment Bank Research - 17 Mar 2015