Results

Deviations

• Celcom’s recovery was weaker-than-expected impacted by one-off expense and start-up losses of new ventures.

Dividend

• Recommended final single-tier tax exempt dividend of 12 sen (4Q14: 14 sen) per share subject to shareholders’ approval.

• YTD dividend of 20 sen per share (FY14: 22 sen) is below expectations. This represents 85% payout ratio, higher than FY14’s 84% and in line with progressive dividend policy.

Highlights

• Met FY15 revenue and EBITDA growth KPI, but disappoint if compared at constant currency with Celcom remains a drag. Other OpCos continue to deliver strong performances while associates’ contributions are steady.

• Ncell acquisition was approved overwhelmingly in EGM and slated to be fully consolidated by 2H16.

• Celcom: Blaming on the flattish market and intense price war, it lost 260k prepaid subs in 4Q15. Blended ARPU was stable at RM42. FY15 mobile data revenue and mobile internet revenue grew strongly by 21% and 48%, respectively on the back of 59% smartphone penetration rate. LTE stood at 52%.

• Data monetization will be the main focus for Celcom going forward rather than engaging in price-centric rivalry. This supports our view that market will be rational in FY16.

• XL: Transformation strategy continues to show further positive momentum in terms of financial performance and operating metrics. Proposed right issue to repay shareholder’s USD500m loan on top of tower disposal plan will strengthen balance sheet.

• Robi: Incumbent heightened competition taking advantage on its merger process with Airtel.

• FY16 KPI (constant currency): Revenue growth of 9.8%; EBITDA growth of 13.7%; ROIC of 6.6% and ROCE of  6.0%. CAPEX  is budgeted at RM5.5bn.

Catalysts

• Higher smartphone penetration boosting data ARPU.

• Strong growth in low penetration developing markets.

• Penetration into new markets and in-country consolidations.

Risks

• Regulatory risks, price wars and high gearing level.

Forecasts

• Updated forecasts using FY16 KPIs as guidance while taking deviations mentioned above into considerations. As  a result, FY16/17 EPS were increased by 9.4%/25.8% mainly due to consolidation of Ncell.

Rating

HOLD , TP: RM6.25 

Positives

• mobile internet growth, margin improvements through collaborations/sharing and unlock value through tower listing.

Negatives

• Higher cost for spectra, OTT threat substituting voice and SMS and unable to monetize data.

Valuation

Reiterate HOLD with a higher SOP-derived TP of RM6.25 (+2.6% from previous’ RM6.09) as we incorporate Ncell’s valuation (see Figure #9).