While headline was in the red, 9M22 core net profit of RM1.1bn (+18% YoY) beat expectations. Except for Dialog and Ncell, all OpCos contributed positively along with Link Net consolidation to the top line growth which was filtered down to the stronger core earnings, partly aided by lower MI charge. Reiterate HOLD with higher SOP-derived TP of RM2.97 as a result of our upward earnings revisions. We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger, regulatory and economic risks are major concerns.

Exceed expectations. While headline was in the red, 3Q22 core net profit of RM375m (+13% QoQ, -5% YoY) lifted 9M22’s to RM1.1bn (+18% YoY) which beat expectations, accounting for 81% and 86% of our and consensus full year estimates, respectively. The positive surprise was due to lower-than-expected D&A. 9M22 one-off adjustments include tower disposal gain (-RM58m), forex loss (+RM1.1bn) and others (+RM287m).

Dividend. Approved declaration of a single tier tax exempt DPS of 5 sen (3Q21: none). Entitlement and payment dates will be determined and announced in due course. 9M22 DPS amounted to 5 sen vs 9M21’s 4 sen.

QoQ. Apart from the consolidation of Link Net beginning 3Q22, 8% turnover growth was led by Smart (+16%), followed by Dialog (+4%), XL (+3%), edotco (+1%), while Celcom and Robi were flat, more than sufficient to offset the sole loser Ncell (-6%). In turn, core net profit gained 13% aided by lower tax and MI charge.

YoY. Top line was up by 11% thanks to Link Net consolidation and higher contributions from edotco (+27%), Smart (+23%), XL (+13%), Celcom (+5%) and Robi (+1%), while Dialog (-26%) and Ncell (-4%) experienced declines. However, core earnings contracted by 5% impacted by higher D&A, net interest expense and tax.

YTD. Top line growth of 8% can be broken down into edotco (+25%), Smart (+15%), XL (+12%), Robi (+3%), Celcom (+3%), Ncell (-3%) and Dialog (-15%). Despite the higher net interest expense and tax, bottom line gained 18% thanks to lower MI charge.

Celcom. Sub base experienced a total net churn of 118k QoQ in 3Q22 and ended with 9.4m subs as prepaid experienced attrition. Blended ARPU rose to RM45 (+RM1 QoQ) thanks to both postpaid and prepaid’s positive ARPU developments of +RM1 QoQ to RM81 and RM31, respectively. LTE population coverage expanded to 96% along with smartphone penetration at 94%.

XL. Total base added 200k QoQ to 57.4m subs as both postpaid and prepaid sub bases gained and ended 3Q22 with 1.5m and 55.9m, respectively. Prepaid ARPU was stable at IDR38k while postpaid’s was eroded by IDR1k QoQ to IDR96k. With the improved coverage and more affordable device bundle offerings, 92% of total base or 53m are 4G users generating 2,046PB of total traffic in 3Q22, +3% sequentially and +19% YoY.

Forecast. Based on the deviation above, we tweak our assumptions which led to higher FY22-24 core PAT projections by 6%, 7% and 6%, respectively.

Reiterate HOLD with higher SOP-derived TP of RM2.97 from RM2.81 (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 economic (in Sri Lanka) 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 - 29 Nov 2022