1QFY21 CNP of RM218m came within our/street’s estimates at 23%/20%. No dividends declared, as expected. In the short term, we expect continued stiff competition in its regional markets. In the long term, we expect consolidations in Malaysia and Indonesia to rationalise competition, thus arresting ARPU declines. We raise FY21E/FY22E CNP by 3%/14% on better cost saving assumptions. Maintain FY21E/FY22E DPS of 8.0 sen/9.0 sen. Maintain OUTPERFORM on lower SoP-TP of RM4.20 (from RM4.40) after house-keeping adjustments to valuations and assumptions.

1QFY21 within estimates. 1QFY21 CNP of RM218m came within expectations, making up 23% of our full-year estimate, but barely within street’s at 20%. 1QFY21 revenue of RM6.06b came within our/street’s estimates at 24% each. No dividend declared, as expected.

YoY, 1QFY21 revenue inched up 0.5% to RM6.06b. EBITDA grew by a relatively stronger 7.5% on the back of a 26%/10% growth in EBITDA from Celcom/Edotco. Ncell’s lower EBITDA weighed, in tandem with its revenue decline. Excluding one-offs, CNP rose 75% due to higher EBITDA contribution from Celcom and lower losses from Axiata Digital Services.

(refer to the overleaf for more in-depth YoY comparison)

QoQ, revenue fell 3%, dragged by weaker performances from XL, Dialog, Smart and Edotco. All OpCos registered higher subs, save for XL. Edotco’s tenancies and towers continued to grow and the lower revenue is likely due to seasonality. Thanks to cost savings from Edotco and Robi, EBITDA fell by a relatively modest 1.4%. The higher tax rate of 48% (vs. a tax credit previously weighed) and CNP fell by a proportionally larger 32%.

In the near term, we expect continued subs growth across the markets but at lower ARPUs, as continued stiff competition continues to weigh. While we expect competition in Indonesia to slightly ease as the dominant players take a step back from aggressive offerings, we do not expect ARPU recovery. In the long term, we foresee more manageable competition in both Malaysia and Indonesia following consolidation of Celcom and Digi, and CK Hutch and Ooredoo’s Indonesia operation. Management looks to continue its cost optimisation efforts (such as via procuring as a Group rather than individual entities for more competitive pricing) to achieve its 2024 targets, one of which is to achieve >20% EBIT margins.

Post results, we tweak FY21E/FY22E revenue by 0.6%/-0.4% but raise CNP by 3%/14% on better cost savings assumptions, namely for Ncell and Edotco. We maintain our FY21E/FY22E DPS of 8.0 sen/9.0 sen, yielding 2.3%/2.6%.

(refer to the overleaf for comments on Celcom)

Maintain OUTPERFORM on lower SoP-driven TP to RM4.20. After some house-keeping adjustments, most notably: (i) raising FY21E net debt assumption, (ii) raising Edotco’s valuation from 7x to 9x EV/EBITDA, (iii) raising Celcom WACC from 8% to 9%, (iv) raising Robi’s valuation from 4x to 5x EV/EBITDA, (v) raising Dialog’s valuation from 4.8x to 5x EV/EBITDA, (vi) including valuation of Axiata’s digital marketing subsidiary (ADA) of RM1.1b. This series of changes came about after we revisit the assumptions of each OpCo and their respective prospects.

Source: Kenanga Research - 27 May 2021