Results

• Within expectations: 1H17 revenue of RM12bn yielded a core net profit of RM644m, accounting for 45% and 46% of HLIB and street FY forecasts, respectively.

Deviations

• In line considering stronger 2H17.

Dividend

• Declared an interim single tier tax exempt dividend of 5 sen per share (2Q16: 5 sen).

Newsbreak

• On the 55:45 basis, edotco and Dawood will own 13.7k towers in Pakistan with a total EV of US$1bn, implying CY17 EV/EBITDA of 8.1x. This deal will be funded via debt (US$600m) and equity from edotco (US$174m) and Dawood (US$166m). This exercise is expected to complete by 4Q17.

Highlights

• QoQ: Top line grew 3% thanks to higher contributions from all OpCos except Smart. Core earnings jumped 21% thanks to (1) better economies of scale on the back of its cost saving initiatives; (2) lower D&A; and (3) lower effective tax rate despite larger losses from Idea.

• YoY: The 14.1% uplift on revenue was due to positive contributions from all OpCos except Celcom. Core net profit more than doubled attributable to margin improvements and lower effective tax rate, sufficiently offset the larger interest cost and Idea losses.

• YTD: Turnover expanded 16% as all OpCos gained, but core net profit fell by 23% mainly due to Idea losses.

• Celcom: Sub base continued to shrink to 9.9m. However, blended ARPU strengthened to RM44 with gain in both postpaid and prepaid at RM82 (+RM1 qoq) and RM31 (+RM1 qoq), respectively. LTE population coverage stood at 77% and spurred smartphone penetration to reach 69% (1Q17: 66%). YTD mobile data revenue grew by 29%, accounting for 42% of total revenue. Data consumption was upped 23% QoQ to 6.2GB per month.

• XL: Postpaid performance was a mix bag where it added 42k subs bringing the base to 582k at the expense of ARPU, which contracted IDR8k to IDR116k. As for prepaid, 2.5m subs were added to reach a total base of 49.9m with a more solid ARPU development of +IDR1k qoq to IDR33k.

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

• Unchanged.

Rating

• HOLD ↔ , TP: RM4.68

• 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 although SOP-derived TP was raised from RM4.65 to RM4.68 (see Figure #10) considering the completion of 10% stake disposal in Smart.

Source: Hong Leong Investment Bank Research - 5 Sept 2017