Results

• 9M15 sales of RM14.5bn was translated into a core net profit of RM1.66bn which came in within expectation, accounting for circa 71% of HLIB and street full year forecasts, respectively.

Deviations

• In line.

Dividend

• None (3Q15: none).

Highlights

• Assisted by favorable FOREX translations, 3Q15 saw major improvements with turnover surpassing the RM5bn mark. Even at constant currency, revenue and EBITDA experienced sequential gain with 2.9% qoq and 3.9% qoq, respectively.

• While smaller OpCos continue to deliver strong performances coupled with steady contributions from associates, Celcom is stabilizing while XL has seen further positive momentum in its transformation agenda.

• Celcom: Ceased two consecutive quarters of service revenue decline, 3Q15 grew marginally at 0.7% qoq on the back of larger sub base of 12.5m, extending net add momentum in 3Q15 with addition of 169k, mainly from prepaid Magic Sim. YTD mobile data and internet revenues grew 25.7% and 58.1% yoy, respectively as smartphone penetration topped 59% in 3Q15. LTE coverage has reached 47.8% population.

• XL: Transformation strategy continues to show further positive momentum in terms of financial performance and operating metrics. Additionally, XL has repaid or refinanced a total of USD580m unhedged external debt. The remaining external USD debt is fully hedged until maturity.

• Dialog: Performed consistently in an increasingly regulated market. While all remain fluid, government is exploring backdated super gain tax, prepaid airtime levy, satellite TV operator levy and one time tax.

• Robi: Heightened competition by the incumbent trying to regain lost market share. Possible M&A with Airtel is still in discussion with good odds to be concluded by year end.

• Associates: Both Idea and M1 delivered strong results and contributed RM278.7m and RM119.1m, respectively in 9M15.

Catalysts

• Higher smartphone penetration boosting data ARPU.

• Strong growth in low penetration developing markets.

• Penetration into new markets and listing of Robi.

Risks

• Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

• Maintained.

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 #9).

Source: Hong Leong Investment Bank Research - 30 Nov 2015