Results

• 1H16 turnover of RM351m was translated into a disappointing core net profit of RM81m, accounting for 37% and 44% of HLIB and street’s FY estimates, respectively.

Deviations

• Compressed margin due to higher subscriber acquisition cost.

Dividend

• Declared special interim tax exempt (single tier) dividend of 13.3 sen (2Q15: none) per share, which goes ex on 13 Sep.

Highlights

• YoY: Higher contributions from all products spurred top line to grow 7%, but core net profit was rather flat as TdC no longer enjoy dividend income after disposal of DiGi shares.

• QoQ: Flattish revenue as data stagnated due to lower global bandwidth sales (GBS) while voice’s growth was negated by data centre’s decline. However, bottom line fell by 24% due to higher subscriber acquisition costs as well as in the absence of dividend income.

• Disposed Campana with a gain of RM2.5m but added CMC stake from 43.8% to 45.3% for RM502k.

• Presale of AAE-1 is observed to be progressing well noncurrent deferred income swelled by 65% qoq from RM28.6m to RM47.1m in 2Q16. No presale for APG.

Catalysts

• Exponential global demand for data bandwidth with quality.

• LTE node fiberization.

• Co-location, cloud computing and virtualization driving higher demand for data centre.

Risks

• Irrational wholesale pricing and competition, regulatory risks and contraction in demand for wholesale bandwidth.

Forecasts

• Updated forecast based on the deviations above and latest guidance. In turn, FY16-17 EPS were revised downward by 20.7% and 3.2%, respectively.

Rating

HOLD, TP: RM7.28

• Positives - by tapping into new growth areas such as global bandwidth and data centre.

• Negatives – price erosion in wholesale segment.

Valuation

Reiterate HOLD although SOP-derived fair value has been raised by 12.7% from RM6.46 to RM7.28 (see Figure #4).

Source: Hong Leong Investment Bank Research - 1 Sep 2016