Results

• FY17 core net profit of RM1.5bn was a disappointment, only accounting for 94.6% of HLIB full year forecast but within street’s expectation at 98.1%.

Deviations

• Larger-than-expected D&A as network rollout accelerated.

Dividends

• Declared 4th interim tax exempt (single-tier) dividend of 4.6 (4Q16: 4.8) sen per share, which goes ex on 22 Feb. YTD dividend amounted to 18.8 (FY16: 20.9) sen per share.

Highlights

• QoQ: Revenue saw a second-consecutive gain with 4.8% due to seasonal strength where mobile service revenue was up by 2.5%. However, core net profit contracted by 4.8% instead, no thanks to higher device cost and finance expense from fair value loss on interest rate swaps (IRS).
• YoY: Excluding non-core, service revenue contraction was larger at -2.7% mainly dragged by prepaid segment where its voice plunged 24.3%. In turn, core net profit was weaker by 10.6% due to the compounded effects of higher device cost, higher D&A associated to spectrum amortizations and higher borrowing expenses.
• YTD: Top and bottom lines contracted by 3.9% and 10.0%, respectively for the same explanations above.
• Postpaid: Sub base continued to climb in 4Q17, topping 2.5m after adding 85k QoQ while ARPU improved RM1 QoQ to RM78. Postpaid revenue reached another record high at RM580m, up 4.1% QoQ and 13.5% YoY.
• Prepaid: Lost 190k subs QoQ, more than offset postpaid’s net adds and ended with a base of 9.3m. However, ARPU gained RM2 QoQ to RM34 as data monetization accelerated and sufficiently mitigated the fall in voice.
• MTR: As highlighted in our sector report, the application of single rate across all voice termination traffics will likely lead to a negative impact, but we opine this is manageable.
• 2018 guidance: 2017A 2018 Guidance Serv ice revenue growth (% ) -5.0 Flat to low single digit decline EBITDA margin (% ) 46% ~ 2017’s CAPEX / serv ice revenue (% ) 12.6% 10% -12%

Risks

• Regulatory risks, irrational competition, exorbitant spectrum fee and unable to monetize data revenue.

Forecasts

• Update forecast based on latest guidance and operating data. In turn, FY18-19 EPS revisions are cut by 6.7% and 3.3%, respectively

Rating

HOLD ↔ , TP: RM5.10 ↑

• Still our favorite due to: (1) Highest dividend yielder; (2) Low frequency band to improve efficiency; (3) Shariah re- inclusion; (4) Strong balance sheet to support spectrum fee; and (5) Prudent management.

Valuation

• Maintain HOLD although our DCF-derived TP was raised from RM4.50 to RM5.10 as we roll forward our valuation. Our fair value is derived based on DCF with WACC of 5.8% (previously 6.0%) and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 24 Jan 2018