Results

• After one-off adjustments, FY16 core net profit of RM2.0bn came in within expectations, accounting for 101 and 104% of HLIB and street?s full year estimates, respectively.

Deviations

• None.

Dividend

• Declared 4th interim single-tier tax-exempt dividend of 5.0 sen (4Q15: 5.0 sen) per share as expected. Ex-date on 24 Feb.
• YTD amounted to 20 sen per share, on par with FY15. Highlights
• QoQ: Service revenue grew 2.5% as both postpaid and prepaid gained 4.6% and 0.2%, respectively. Core earnings strengthened 6% driven by more efficient marketing spend.
• YoY: Excluding non-core, revenue actually grew marginally by 0.5% thanks to growths in Enterprise Fixed and Integrated Services. Bottom line grew materially by 14.3% due to lower G&A cost.
• FY16: Top line ended flattish but core net profit expanded 2.3% on the back of a more efficient marketing spend and savings from optimization program.
• Prepaid: 4Q16 sales were flattish as attritions were offset by ARPU uplift to RM42 (+RM1 qoq). Sub base continued to shrink, down to 9.0m (7.9m RGS) but newly launched Hotlink FAST is gaining momentum rapidly with 1.5m subs.
• Postpaid: MaxisONE plan continued to be the bright spot, gaining 164k while boosting ARPU to RM104 (+RM4 qoq).
• U Mobile?s domestic roaming contribution fell 1.1% qoq to RM91m. First quarterly decline which may imply a slowdown in its aggressiveness in the market.
• MI penetration climbed to 73% as both prepaid and postpaid data usages continued trend up topping 3.3GB/mth and 4.9GB/mth, respectively. There are 4.7m LTE device users consuming 5.9GB data per month, on average.
• 2017 guidance: service revenue, absolute EBITDA and base CAPEX at similar levels to FY16.

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

• Projections are updated based on latest guidance and operating data. In turn, we revise FY17-18 EPS down marginally by 6% and 8%, respectively.

Rating

HOLD ↔, TP: RM6.33 ↓

• Largest telco in terms of revenue market share with quality of service as differentiation to drive leadership in data adoption. Focus will be on service impact due to lesser spectrum allocations and spectrum fee impact on dividend.

Valuation

• Reiterate HOLD with after tweaking DCF-derived TP down by 1% from RM6.40 to RM6.33, reflecting earnings forecast downward revision. Our fair value is based on unchanged WACC of 5.4% and TG of 0%.

Source: Hong Leong Investment Bank Research - 10 Feb 2017