Results

• After one-off adjustments, 9M15 core net profit of RM1.49bn came in within expectations, accounting for 74.1% and 77.7% of HLIB and street’s full year estimates, respectively.

Deviations

• In line.

Dividend

• Declared 3rd interim single-tier tax-exempt dividend of 5.0 sen (3Q14: 8.0 sen) per share, ex-date on 26 Nov 2015. This represents 89.3% payout.

• YTD dividend amount to 15 sen per share (9M14: 24 sen).

Highlights

• First mover advantage with #Hotlink which provides free basic internet. Since the launch in 4Q13, prepaid has been the main service revenue driver. Postpiad’s MaxisONE which was introduced in 2Q14 is gaining momentum as well.

• Service revenue grew at a commendable pace with 3.1% qoq and 5.3% yoy but profitability was impacted by higher IDD interconnect charges and FOREX losses as RM depreciated drastically against USD. FOREX losses of RM113m (RM90m unrealized) is due to vendor financing facility which will only expire in next 4.5 years.

• Prepaid: mobile internet users stood at 7.2m vs. 5.9m in 3Q14, generating 33% of prepaid sales vs. 26% a year ago. Smartphone penetration was 65% vs. 50% in 3Q14. Traction continues in migrant segment with focus in new countries. First dip in RGS base since 4Q13 but not worrying as sales and ARPU strengthened, implying churners are of low value.

• Postpaid: MaxisONE plan users gained 80k to 514k (15.5% of postpaid base) but overall base saw second consecutive quarters of decline to 2.78m due to intense rivalry. Similarly, those attritions are perceived to be low value subscribers.

• U Mobile domestic roaming revenue was flat qoq at RM62m.

• Upped CAPEX guidance from RM1.1bn to RM1.2-1.3bn to support LTE rollout. Service revenue and EBITDA guidance remain unchanged.

Catalysts

• Higher smartphone penetration and LTE coverage boosting data ARPU, network infrastructure outsourcing.

• Continuous momentum of #Hotlink and MaxisOne Plan.

Risks

• Regulatory, competitive and execution risks.

Forecasts

• Tweaked CAPEX based on latest guidance of RM1.2-1.3bn. In turn, this has led to marginal revision of FY15-17 EPS by 1.7%, 1.4% and 1.1%, respectively.

Rating

HOLD , TP: RM6.87

Positives

• Network sharing, prepaid tax pass through, strong postpaid ARPUs (still the highest in the industry) and smartphone penetration.

Negatives

• Access pricing revision, 900MHz refarming and price war.

Valuation

• Reiterate HOLD with unchanged DDM-derived fair value of RM6.87 based on WACC of 5.6% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 29 Oct 2015