Results

• On the back of IDR5.6tr turnover, 1Q16 EBITDA of IDR2.2tr was within expectations, accounting for 23.5% of consensus’ FY estimate, taking into consideration of seasonal softness.

Deviations

• In line.

Highlights

• 3R transformation continued to deliver favorable outcome, charting yoy improvements in operational and financial indicators. But, some sequential weaknesses attributable to seasonality were also observed, including lower postpaid base and blended ARPU (-5% qoq from IDR41k to IDR39k) despite being value centric.

• Balance sheet right sizing initiatives are underway to restore pre-Axis level: (1) right issue to repay USD500m Axiata loan; (2) disposal of 2.5k tower to Protelindo, both expected to be completed by 1H16.

• 1Q16 sales grew 2% yoy as usage grew faster at 5% yoy mainly driven by data which recorded 23% yoy expansion. In 1Q16, data’s contribution to overall revenue edged up 5-ppt yoy to 37% as traffic surged 94% yoy to 84.4PB.

• Smartphone users grew 19% yoy, reaching 20.5m users or 48% of the total base. While smartphone is data’s main growth driver, it has also persistently eroded voice and SMS usage significantly, with -53% and -76% yoy, respectively as users migrate to OTT platforms.

• Recorded second net add under the 3R regime with 500k subs elevating total base to 42.5m in 1Q16.

• Albeit the decline in sales, EBITDA margin was sustained at 39% qoq thanks to the lower interconnection and other direct expenses as domestic interconnect traffic dwindled due to migration to data.

• Continue to invest to provide high quality internet services by adding 3G and 4G nodes by 406 and 2.3k, respectively in 4Q15. This brings total base stations to circa 59k.

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

• Unchanged pending analyst briefing in conjunction with Axiata’s 1Q16 results announcement.

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, unable to monetize data.

Valuation

• Maintain HOLD with unchanged SOP-derived TP of RM6.25 (see Figure #2).

Source: Hong Leong Investment Bank Research - 22 Apr 2016