Results

• Within expectation: FY17 revenue of RM24.4bn yielded a core net profit of RM1.2bn accounting for 96.3% of HLIB FY forecasts, but below street’s at 93.5%

Deviations

• Largely in line.

Dividend

• Recommended tax exempt final dividend of 3.5 sen (4Q16: 3 en) per share subject to AGM’s approval. YTD dividend amounted to 8.5 sen (FY16: 8.0 sen) per share.

Highlights

• QoQ: Top line grew 1% thanks to higher contributions from Celcom, Ncell and Robi. However, core net profit plunged due to (1) higher operating cost; (2) losses from Idea; and (2) higher effective tax rate.
• YoY: The 8% uplift on revenue was due to positive contributions from XL, Celcom and Robi. However, core net profit surged 171% thanks to better economies of scale.
• YTD: Turnover expanded 13% thanks to (1) Ncell and Airtel’s consolidations; and (2) stronger contributions from all OpCos. Nonetheless, core net profit fell by 15% mainly due to Idea losses.
• Celcom: Sub base continued to shrink to 9.5m. However, blended ARPU strengthened to RM48 with gain in both postpaid and prepaid at RM87 (+RM3 qoq) and RM34 (+RM1 qoq), respectively. LTE population coverage stood at 87% and spurred smartphone penetration to reach 74% (3Q17: 72%). Data consumption was upped 18% QoQ to 8.5GB per month per sub.
• XL: Postpaid 4Q17 performance was a mixed bag where it added 72k subs bringing the base to 703k at the expense of ARPU, which contracted IDR1k to IDR114k. As for prepaid, 0.9m subs were added in 4Q17 to reach a total base of 52.8m with a stable ARPU of IDR33k.
• Idea-Vodafone merger may lead to a non-cash technical impairment of RM1.2-1.8bn.
• FY18 headline KPIs (constant rate): Revenue growth of 6.3%; EBITDA growth of 5.8%; ROIC of 5.0-5.5% and ROCE of 4.5-5.0%. CAPEX is budgeted at RM7.4bn.

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: 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 on the back of unchanged SOP-derived TP of RM5.01 .

Source: Hong Leong Investment Bank Research - 23 Feb 2018