Results

• Broadly in line: 9M17 revenue of RM18bn yielded a core net profit of RM996m, accounting for 69% and 77% of HLIB and street FY forecasts, respectively.

Deviations

• Largely in line.

Dividend

• None (3Q16: none) due to semi-annual distribution. YTD dividend amounted to 5 sen (9M16: 5 sen) per share.

Highlights

• QoQ: Top line grew 2% thanks to higher contributions from all OpCos. However, core net profit was rather flat as margin improvement from cost optimization was offset by (1) larger losses from Idea; and (2) higher effective tax rate of 43% vs 16% in 2Q17.
• YoY: The 14% uplift on revenue was due to positive contributions from all OpCos except Ncell. However, core net profit plunged 30% due to widening Idea losses and higher effective tax rate.
• YTD: Turnover expanded 15% thanks to (1) Ncell and Airtel’s consolidations; and (2) stronger contributions from all OpCos except Celcom. Nonetheless, core net profit fell by 26% mainly due to Idea losses.
• Celcom: Sub base continued to shrink to 9.7m. However, blended ARPU strengthened to RM46 with gain in both postpaid and prepaid at RM84 (+RM2 qoq) and RM33 (+RM2 qoq), respectively. LTE population coverage stood at 82% and spurred smartphone penetration to reach 72% (2Q17: 69%). YTD mobile data revenue grew by 27%, accounting for 43% of total revenue. Data consumption was upped 16% QoQ to 7.2GB per month.
• XL: Postpaid 3Q17 performance was a mixed bag where it added 49k subs bringing the base to 631k at the expense of ARPU, which contracted IDR1k to IDR115k. As for prepaid, 2.0m subs were added in 3Q17 to reach a total base of 51.9m with a stable ARPU of 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

• Update our model based on latest data. In turn, FY17 EPS was lowered by 6% to account for Idea losses while FY18- 19 EPS are raised by 6% and 2%, respectively taking into account of margin enhancements.

Rating

HOLD ↔, TP: RM5.01 ↑

• 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 RM4.68 to RM5.01 , reflecting our upward earnings revisions

Source: Hong Leong Investment Bank Research - 24 Nov 2017