Results

• FY17 revenue of RM12.1bn yielded a much anticipated core net profit of RM863.3m, accounting for 104% and 101% of HLIB and consensus full year estimates, respectively.

Deviation

• Within expectations.

Dividend

• Declared 2nd interim single-tier dividend of 12.1 sen (4Q16: 12.2 sen) per share, which will go ex on 14 Mar. FY17 dividend amounted to 21.5 sen (FY16: 21.5 sen) per share, this is higher than our expectation.

Highlights

• QoQ: Top line gained 8.8% as all products registered growth due to seasonal strength. In turn, bottom line grew 9.1% to RM222m while partly aided by lower effective tax rate.
• YoY: Turnover was lower by 1.1% with internet being the only gainer (+7.0%) insufficient to offset voice, data and others’ contractions. In turn, core earnings fell 17.7% due to higher other operating costs associated to trade settlement, rental and international service charge.
• YTD: Revenue growth was rather flat at 0.2% as internet’s +8.8% was sufficient to offset voice’s -4.5%, data’s -2.6% and others’ -2.6%. Core net profit was up by 1.8% in the absence of webe’s accelerated depreciation.
• UniFi added 64k subs in 4Q17 elevating total base to 1.1m, representing 40% take up rate on the back of 2.8m high speed broadband ports after completion of HSBB2 project. ARPU fell to RM197, 3rd consecutive erosion. On the contrary, Streamyx experienced a churn of 81k subs (larger than UniFi’s net adds) ended 4Q17 with 1.2m base while ARPU was down to RM90. DEL ARPU was stable at RM25.
• unifi mobile (webe) adoption gained traction with 9.8% (vs. 8.0% in 3Q17) of TM household penetration.
• Headline KPIs and management guidance (excluding P1): 2018 Mid Term Revenue growth (% ) 3.5 – 4.0 3.5 – 4.0 EBIT growth (% ) FY17 RM Level 3.5 – 4.0

Catalyst

• Earnings uplift from HSBB and ICT-BPO.
• LTE node fiberization.

Risks

• Appreciation of USD, regulatory risks, irrational competition and acceleration of global bandwidth price erosion.

Forecasts

• Unchanged.

Rating

HOLD ↔ , TP: RM5.93 ↔

• Due to its monopoly status in Malaysian fixed telco sector, regulatory risk is higher while government funding further lowers its bargaining power. Convergence is a visionary ambition but webe will drag in the medium term. Dividend policy of at least RM700m payout caps the downside.

Valuation

• Reiterate HOLD with unchanged DDM-derived TP of RM5.93 based on unchanged WACC of 5.8% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 28 Feb 2018