Results

• 1Q15 sales of RM4.75bn was translated into a core net profit of RM556.0m which came in within expectation, accounting for 23.5% of HLIB’s full year forecast but shy of street’s estimate by 13.6% if annualized.

Deviations

• Largely in line.

Dividend

• None (1Q14: none).

Highlights

• Overall dismal performance was dragged by two largest OpCos, namely Celcom and XL which struggled operationally, while to a lesser extent Robi was plagued by nationwide political unrest. Partly mitigating that, Smart and Dialog continued their strong growth trajectories while corporate tax rate was lower at circa 22%.

• Celcom: Post BSS stabilization, it is focused on revitalizing trade channels, moving to non-traditional channels and optimizing product offerings. However, more than 400 dealer sites were affected by East Coast flood, a stronghold which accounts for 16% of revenue.

• XL: After Axis’ integration, 2015 will be a transformational year as it shifts its strategy from volume to value. This led to product portfolio revamping which has impacted subscriber base and turnover. Axis brand was successfully re-launched, with a focus on delivering value-for-money services.

• Associates: Both Idea and M1 delivered strong results and contributed RM97m and RM42m, respectively.

• The underperformance as well as taking into consideration of challenges ahead including GST impact, elevated regulatory risks and FOREX volatility has led to renewed FY15 headline KPIs:
• 

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 pending analyst briefing today.

Rating

BUY , TP: RM7.52

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

• Reiterate BUY on the back of unchanged SOP-derived TP of RM7.52 (see Figure #8).

Source: Hong Leong Investment Bank Research - 20 May 2015