Results

• FY16 revenue of RM12.1bn yielded a much anticipated core net profit of RM847.9m, 105% of HLIB and consensus full year estimates, respectively.

Deviation

• Largely within expectations.

Dividend

• Declared 2nd interim single-tier dividend of 12.2 sen (4Q15: 12.1 sen) per share, which will go ex on 7 Mar.
• FY16 dividend amounted to 21.5 sen (FY15: 21.4 sen) per share, this is higher than our expectation.

Highlights

• QoQ: Revenue expanded 11% thanks to higher contributions from all products, including voice with 7% while internet +4%, data +10.6% and others +29%. Coupled with lower effective tax rate, this has aided bottom line to grow strongly at 30%
• YoY: Rather flattish top line as internet?s growth was partly offset by declines in voice, data and other revenues. With improvements in cost structure, bottom line gained 4%.
• YTD: Revenue expanded 3% thanks to higher contributions from all products which more than sufficient to offset the fall in voice. Adjusting for FOREX, core net profit actually fell by 7% attributable to accelerated depreciation associated to webe as migration to LTE gained pace.
• UniFi added 28k subs in 4Q16 elevating total base to 949k, representing 42.6% adoption rate of on the back of circa 2.23m ports. ARPU strengthened to RM201 (+RM4 qoq) as 79% of the base is on packages of 10Mbps and above after the launch of all new UniFi Advance packages. This is also attributable to higher purchase of premium IPTV content.
• While ARPU also gained RM2 qoq to RM92, Streamyx base fell by 27k qoq to 1.42m. DEL ARPU was stable at RM28.
• Headline KPIs and management guidance (excluding P1): 2017 Mid Term Revenue growth (%) 3.5 ? 4.0 3.5 ? 4.0 EBIT growth (%) FY16 RM Level 3.5 ? 4.0

Catalyst

• Earnings uplift from HSBB and ICT-BPO.
• LTE node fiberization.

Risks

• Appreciation of USD, regulatory risks, irrational competition and acceleration of global bandwidth price erosion.

Forecasts

• Unchanged.

Rating

HOLD ↔, TP: RM5.93 ↔

• Due to its monopoly status in Malaysian fixed telco sector, regulatory risk is higher while government funding further lowers its bargaining power. Convergence is a visionary ambition but webe will drag in the medium term. Dividend policy of at least RM700m payout caps the downside.

Valuation

• Reiterate HOLD with unchanged DDM-derived TP of RM5.93 based on unchanged WACC of 5.8% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 23 Feb 2017