Results

• 9M17 revenue of RM6.5bn was translated into a core net profit of RM1.5bn, beating ours and street’s full estimates , accounting for 81.4% and 79.8%, respectively.

Deviations

• Operational excellence leading to improved EBITDA margin by realizing cost savings from direct, O&M and marketing expenses.

Dividend

• Declared 3rd interim single-tier tax-exempt dividend of 5.0 sen (3Q16: 5.0 sen) per share which goes ex on 28 Nov. YTD dividend amounted to 15.0 sen (9M16: 15.0 sen) per share, as expected. Highlights
• QoQ: Service revenue gained 1.6% as postpaid’s growth more than offset the slack in prepaid. Despite higher D&A which was associated to new spectrum assignment, core net profit increased by 13.8% thanks to improved cost structure.
• YoY: Turnover was upped healthily by 2.8% while service revenue growth was lower at 2.0% driven by postpaid (+9.0%) and home’s (+22.8%) contributions, sufficiently offset prepaid’s decline (-6.1%). Core earnings gained 7.6% attributable to effective cost management.
• YTD: For the same reason as above, top line and core net profit increased by 2.3% and 9.1%, respectively.
• Postpaid: Continue to be the star as revenue inched up 5.7% QoQ and 9.3% YoY to RM1.1bn leveraging on the larger subscriber base of 2.8m while ARPU remained resilient at RM102. MaxisONE Plan’s net add slowed to 57k QoQ (vs. >100k per quarter in the past) while ARPU continued to trend down to RM117 (-RM3 QoQ)
• Prepaid: Turnover declined 2.9% QoQ and 6.0% YoY due to the stubborn attritions despite stable ARPU of RM42. Blaming on SIM consolidation, prepaid base saw a churn of 328k to 7.2m subs. Mobile internet now accounts for 52% of prepaid revenue base compared to 42% in prior year.
• Without confirming its bid intention, Maxis shared that the minimum 700MHz spectrum required for its size to operate optimally is 2x10MHz.

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

• Tweak our cost model based on latest guidance. In turn, FY17-19 EPS forecasts are raised by 5.6-5.8%, respectively.

Rating

HOLD ↔ , TP: RM6.03 ↑

• 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. Our DCF-derived TP is raised by 2.0% from RM5.91 to RM6.03, based on unchanged WACC of 5.9% and TG of 0%.

Source: Hong Leong Investment Bank Research - 26 Oct 2017