FY20 core net profit of RM865m (-10% YoY) met HLIB’s but exceeded consensus estimate. DPS of 5 sen was announced which brought YTD’s to 7 sen. Headline PATAMI was impacted by accelerated depreciation due to 3G shutdown to pave way for 4G refarming. We maintain our HOLD call and SOP-derived TP of RM3.76.

In line with HLIB but above street. 4Q20 core net profit of RM319m (-15% QoQ, +20% YoY) brought FY20’s sum to RM865m (-10% YoY), which met our expectation at 103% but beat consensus at 111%. FY20 one-off adjustments include XL tower disposal gain (RM368m), accelerated depreciation (-RM604m), forex loss (-RM3m) and other losses (-RM260m).

Dividend. Announced DPS of 5.0 sen (4Q19: 4.5 sen) pending ex-date. YTD DPS amounted to 7.0 sen (FY19: 9.5 sen).

QoQ. Turnover gained 3% led by Smart (+16%), followed by Ncell (+7%), Dialog (+4%), edotco (+4%) and Celcom (+3%) more than sufficient to offset the declines in XL (-3%) and Robi (-3%). However, core net profit lost 15% to RM319m impacted by higher cost structure and D&A.

YoY. Top line was flat as expansions from Smart (+15%), Dialog (+5%) and edotco (+4%) were fully neutralized by falls in Ncell (-21%), Celcom (-6%) and XL (-4%) while Robi was flat. Despite the higher D&A, core earnings gained 20% due to improved EBITDA margin and positive tax effect.

YTD. Revenue fell 2% due to Covid-19 disruptions, where gains from Smart (+5%), edotco (+4%), Robi (+2%), XL (+2%) and Dailog (+1%) were entirely offset by the contractions in Ncell (-25%) and Celcom (-7%). In turn, core earnings declined 10% to RM865m due to higher D&A and lower finance income.

Celcom. Sub base experienced a total net gain of 278k QoQ in 4Q20 and ended with 8.7m subs as both prepaid and postpaid added 203k and 75k, respectively. Blended ARPU eroded to RM46 (-RM2 QoQ). LTE population coverage reduced to 92% along with smartphone penetration at 88% (4Q19: 83%).

XL. Total base added 1.0m (or +2%) QoQ to 57.9m subs at the expense of ARPU. Both prepaid and postpaid added 1m and 10k users to achieve a base on 56.7m and 1.2m, respectively. Prepaid ARPUs was eroded by IDR2k QoQ to IDR33k due to competition while postpaid’s was stable QoQ at IDR110k. With the improved coverage and more affordable device bundle offerings, 89% of total base or 52m (+2m QoQ) are smartphone users generating 4,869PB of total traffic in FY20, up 47% YoY.

FY21 headline KPIs. At constant currency, (1) revenue growth of low single digit; (2) EBITDA growth of low single digit; and (43 Capex of RM6.5bn broken-down to Celcom (RM1.1bn), XL (RM2bn), Dialog (RM650m), Smart (RM370m), Robi (RM900m), Ncell (RM300m), edotco (RM860m) and others (RM320m).

Forecast. Unchanged as results are in line. Reiterate HOLD with unchanged SOP-derived TP of RM3.76 (see Figure #2). We like its regional exposures with focus on emerging countries which may deliver great growth potential. However, regulatory (especially in Nepal) and execution risks are major concerns. Other potential corporate exercises that may unlock values include in country consolidation, tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 26 Feb 2021