Results

• FY16 revenue of RM21.6bn yielded a disappointing core net profit of RM1.4bn, accounting for 91% and 86% of HLIB and street FY forecasts, respectively.

Deviations

• Weaker-than-expected EBITDA margins coupled with higher- than-expected D&A.

Dividend

• Recommended final single-tier tax exempt dividend of 3 sen (4Q15: 12 sen) per share subject to shareholders’ approval. YTD dividend of 8 sen per share (FY15: 20 sen) is below expectations. This represents 50% payout ratio.

Highlights

• QoQ: Top line grew 6% thanks to higher contributions from all OpCos. However, core net profit plunged by 85% due to the impact from higher cost structure and D&A.
• YoY: The 8% uplift on revenue was due to consolidation of Ncell. However, this was not reflected in core net profit which fell 81% weighed down by higher (1) D&A; (2) interest cost; and (3) lower contributions from M1 and Idea.
• FY16: Top line grew by 9% but bottom line declined by 32% for the same reason as above.
• Celcom: Sub base continued to shrink to 10.6m mainly due to cleanup exercise involving 400k prepaid subs. However, ARPU held up higher with both postpaid and prepaid at RM80 (+RM4 qoq) and RM31 (+RM1 qoq), respectively. Postpaid new offerings saw positive take up while prepaid remains challenging in the near term. FY16 mobile data revenue grew 10% and accounted for 34% of total revenue.
• XL: While FY16 service revenue was weaker by 4%, EBITDA margin gained 1-ppt attributable to lower interconnect costs and lower infrastructure expenses.
• FY17 headline KPIs: Revenue growth of 9-11%; EBITDA growth of 7-9%; ROIC of 4.5-5.0% and ROCE of 4.0-4.5%. CAPEX is budgeted at RM6.6bn.
• Dividend: Payout ratio is guided to remain at 50% level for the short term and will revert to FY15 (85%) level within 2 years for prudent (FOREX volatility and spectrum) and strategic (data CAPEX and M&A) reasons.

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

• Revise forecasts based on latest operating data as well as guidance which in turn lead to lower FY17-18 EPS by 6.9% and 11.6%, respectively.

Rating

HOLD ↔, TP: RM4.65 ↓

• Regional exposure with focus on emerging countries with great growth potentials. However, regulatory and execution risks are major concerns. Asset monetization through tower listing is a long term catalyst.

Valuation

• Maintain HOLD rating with SOP-derived TP lowered to RM4.65 from RM5.28 reflecting our cut in earnings.

Source: Hong Leong Investment Bank Research - 24 Feb 2017