1H21 core net profit of RM521m (+3x YoY) beat ours but matched consensus. The outperformance was due to higher-than-expected EBITDA margin. Celcom grew its sub base while ARPU was stable. Spurred by strong Lebaran period and healthier market rivalry, XL enjoyed positive sub and SRPU developments. After tweaking projections, our SOP-derived TP is higher at RM3.96. Maintain HOLD call.

Exceeded HLIB but in line with consensus. 2Q21 core net profit of RM302m (+38% QoQ, +6.4x YoY) brought 1H21 sum to RM521m (+3x YoY) came in above ours at 59% but match consensus at 53%. The outperformance was mainly attributable to higher-than-expected EBITDA margin. 1H21 one-off adjustments include gain on tower disposals (-RM40m), forex loss (+RM108m) and other losses (+RM99m).

Dividend. Declared a single tier tax exempt DPS of 4 sen (2Q20: 2 sen). Entitlement and payment dates will be determined and announced in due course. YTD DPS amounted to 4 sen (1H20: 2 sen).

QoQ. Turnover gained 5% led by XL (+8%), followed by Dialog (+6%), Robi (+4%), Smart (+4%) and edotco (+2%) more than sufficient to offset the falls in Ncell (-7%) and Celcom (-1%). In turn, core net profit jumped 38% to RM302m thanks to lower D&A (-4%).

YoY. Top line was up by 10% as all OpCos registered better performance: Celcom (+12%), XL (+1%), Robi (+10%), Dialog (+13%), Ncell (+11%), Smart (+7%) and edotco (+2%). Core earnings leaped more than 5 folds attributable to lower corporate effective tax rate (2Q21: 31.4% vs 2Q20: 61.4%).

YTD. Revenue inched up by 5% as the expansions from Celcom (+9%), Robi (+4%), Dialog (+4%), Smart (+6%) and edotco (+3%) more than sufficient to neutralize the contractions in XL (-3%) and Ncell (-4%). As a result, core earnings tripled to RM521m due to lower finance cost (-13%) and lower tax rate (1H21: 37.7% vs 1H20: 43.4%).

Celcom. Sub base experienced a total net gain of 229k QoQ in 2Q21 and ended with 9.2m subs as both prepaid and postpaid added 184k and 44k, respectively. Blended ARPU was stable at RM45. LTE population coverage stayed to 93% along with smartphone penetration at 90% (1Q21: 89%).

XL. Spurred by strong Lebaran period and healthier market rivalry, total base added 750k (or +1.3%) QoQ to 56.8m subs as both prepaid and postpaid saw positive developments. Prepaid and postpaid sub base ended 2Q21 with 55.5m and 1.2m, respectively. Prepaid ARPUs increased by IDR3k QoQ to IDR36k while postpaid’s was stable at IDR108k. With the improved coverage and more affordable device bundle offerings, 91% of total base or 51.7m (+1.2m QoQ) are smartphone users generating 1,572PB of total traffic in 2Q21, up 13% QoQ.

Forecast. After tweaking our forecast based on the deviation above, FY21-23 earnings are revised upward by 24%, 11% and 8%, respectively. Reiterate HOLD after lifting our SOP-derived TP from RM3.51 to RM3.96 (see Figure #2). We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and execution risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 30 Aug 2021