Results

• FY17 core net profit of RM2.1bn was within expectations, accounting for 103.5% and 101.5% of ours and street’s full year estimates, respectively.

Deviations

• None.

Dividend

• Declared 4th interim single-tier tax-exempt dividend of 5.0 (4Q16: 5.0) sen per share which goes ex on 26 Feb. YTD amounted to 20.0 (FY16: 20.0) sen per share, as expected. Highlights
• QoQ: Although top line declined by 3.0%, service revenue fell at a slower pace of 1.7% as prepaid’s decline more than offset postpaid’s growth. Core net profit fell by 2.5% mainly due to higher D&A on the back of larger asset base.
• YoY: Top line contracted by 2.9% mainly due to weaker device sales. Similarly, service revenue was down at a more moderate pace of 2.1% due prepaid’s softness. Core earnings fell by 1.1% as effective cost management partly cushioned the lackluster revenue performance.
• YTD: While turnover gained 1.0%, service revenue was up by 0.8% thanks to postpaid’s expansion more than offset the slack in prepaid. Operational excellence and the absence of accelerated depreciated had lifted core net profit by 6.3%.
• Postpaid: Continued to be the main growth driver as revenue inched up 2.0% QoQ and 6.5% YoY to RM1.1bn leveraging on the larger subscriber base of 2.9m coupled with stronger ARPU of RM103 (+RM1 QoQ). MaxisONE Plan’s net add regained pace to 80k QoQ (vs. 57k in 3Q17) while ARPU was resilient at RM117.
• Prepaid: Turnover declined 5.3% QoQ and 11.1% YoY due to the stubborn attritions and the declining ARPU at RM41 (- RM1 QoQ). Blaming on competition and SIM consolidation, prepaid base saw a churn of 157k to 7.0m subs. Mobile internet accounted for 56% of revenue vs. 47% in prior year.
• Guidance: (1) service revenue to decline in low-single digit; (2) EBITDA to decline in mid-single digit; (3) CAPEX of RM1bn; and (4) Free cash flow (excluding upfront spectrum assignment fees) to be at similar level to FY17.

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

• Unchanged.

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 with unchanged DCF-derived TP of RM6.03, based on WACC of 5.9% and TG of 0%.

Source: Hong Leong Investment Bank Research - 09 Feb 2018