Results

• 1Q17 revenue of RM2.2bn was translated into a core net profit of RM0.5bn, accounting for circa 27.0% of ours and consensus full year estimates.
• Within expectations considering new spectrum amortization to kick in in 2H17.

Deviations

• None.

Dividend

• Declared 1st interim single-tier tax-exempt dividend of 5.0 sen (1Q16: 5.0 sen) per share as expected. Ex-date on 29 May. Highlights
• QoQ: While overall revenue shrunk by 2.6%, service revenue only fell by 1.7% due to seasonal weakness in mobile, especially in roaming. With the higher resource costs related to performance incentives, core net profit declined 6.1% to RM510.0m.
• YoY: Excluding non-core, service revenue was flat with a mere 0.3% growth thanks to growths in Enterprise Fixed and Integrated Services. However, bottom line grew 5.8% mainly due to lower effective corporate tax rate of 25% in 1Q17 vs. 29% in 1Q16.
• Postpaid: Revenue was down 2.1% qoq and 0.8% yoy to RM989m as the enlarged subscriber base was not able to negate the softening ARPU. RGS30 sub base continue to gain for the third consecutive quarters to 2.7m (+32k qoq) while MaxisONE plan (MOP) sub base has reached 1.8m (132k qoq). Both RGS30 and MOP ARPUs trended down by RM2 and RM6 qoq to RM102 and RM121, respectively.
• Prepaid: Turnover declined 1.2% qoq and 0.3% yoy to RM1.0bn. On the contrary, this was attributed to RGS30 sub base which has been declining for the past 7 quarters while ARPU was steady at RM42. Hotlink FAST is the silver lining with growing take-up rate to 1.7m subs yielding RM44 ARPU.
• U Mobile?s domestic roaming contribution picked up strongly by 9.8% to RM100m.
• Data consumption continued to surge with 6.2GB/mth and 3.7GB/mth for postpaid and prepaid, respectively. There are 5.2m LTE device users consuming 6.5GB data per month.

Catalysts

• Higher smartphone penetration and LTE coverage boosting data ARPU, network infrastructure outsourcing.
• Continuous momentum of Hotlink FAST and MaxisOne Plan.

Risks

• Regulatory, competitive and execution risks.

Forecasts

• Maintained

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 unchanged DCF-derived TP of RM6.33, based on unchanged WACC of 5.4% and TG of 0%.

Source: Hong Leong Investment Bank Research - 28 Apr 2017