Results

• 1Q15 top line of RM1.79bn was translated into core net profit of RM479.2m, accounting for 23.4% and 22.9% of HLIB and consensus’ full year estimates, respectively. This is regarded in line considering the seasonally weaker quarter while expecting GST boost in 2H15.

Deviations

• Broadly in line.

Dividends

• Declared 1st interim tax exempt (single-tier) dividend of 6.1 sen per share (1Q14: 6.2 sen), representing a 99% payout, which goes ex on 13 May 2015.

Highlights

• 1Q15 service revenue came in at RM1.6bn (+2.2% yoy and -2.4% qoq) due to strong internet revenue gain (+35% yoy and 5% qoq) as usage volume was more than sufficient to undo its cannibalization effect on SMS (-20% yoy and -6% qoq) and voice (-7% yoy and -6% qoq).

• Sub acquisitions continued where prepaid and postpaid rose by 233k and 37k sequentially, respectively, enlarging total base to 11.7m.

• Data contributes 42.3% to service revenue (+5.6ppt yoy and +2.1ppt qoq) as internet users now account for 75% and 53% of postpaid and prepaid subscriber bases, respectively.

• Both postpaid and prepaid ARPUs trended downward to RM81 (-RM2 qoq) and RM39 (-RM2 qoq), respectively.

• Robust 3G network along with LTE rapid expansion (33% population coverage) have assisted smartphone adoption to surge to 53.2% (+3.9ppt qoq) of which 19.4% were users with LTE-enabled device.

• Internet penetration reached 56.7% over a larger subscriber base, driven by bite-size offerings, data pricing and entrylevel smartphone bundles. In turn, data traffic volume doubled yoy and +22% qoq to 19.9 PB in 1Q15.

• The recent government’s call in reducing broadband pricing is applicable to large screen/dongle segment only and impact is expected to be immaterial.

• 2015 guidance remains unchanged: low to mid-single digit service revenue growth, 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

• Unchanged.

Rating

HOLD , TP: RM6.30

Positives

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

Negatives

• Intense competition from U Mobile, MVNOs and OTT 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 - 28 Apr 2015