Results

• 1H17 revenue of RM5.9bn yielded a much anticipated core net profit of RM437.8m, accounting for 52% and 51% of HLIB and consensus full year estimates, respectively.

Deviation

• Within expectations.

Dividend

• Declared an interim single-tier dividend of 9.4 sen (2Q16: 9.3 sen) per share which goes ex on 13 Sep.

Highlights

• QoQ: Top line was rather flat as growths from internet (+1.3%), data (1.8%) and others (+2.1%) were partly offset by voice?s decline (-2.5%). Bottom line shrunk by 9.5% due to higher expenses related to direct costs, supplies and materials and other operating costs (sites rental and licensing fees).
• YoY: Turnover was down by 2.1% attributable to weaker contributions from all segments (voice -4.7%, data -6.4% and others -9.5%) except internet (+8.5%). However, with better economies of scale, core earnings gained 24.2%.
• YTD: Revenue picked up 0.8% mainly driven by internet (+8.5%), sufficiently offset declines from voice (-5.1%) and data (-1.9%). Core net profit was up by 18.2% in the absence of accelerated depreciation associated to webe.
• UniFi added 28k subs in 2Q17 elevating total base to 1m, representing 37% penetration rate of the back of 2.7m high speed broadband ports after completion of HSBB2 project . ARPU was stable at RM200 as 88% 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.
• On the contrary, Streamyx experienced a churn of 39k subs ended 2Q17 with 1.4m base while ARPU was stable at RM90. DEL ARPU fell RM1 qoq to RM25.
• webe adoption gained traction with 5.6% (vs. 4.2% in 1Q17) of TM household penetration, on track to achieve 8-10% by end of FY17.

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 - 30 Aug 2017