Telco - overall - 2015: A year to tread carefully
Competition is likely to be intense in two out of the four markets we cover. Capex should also stay high as telcos invest further in rolling out 3G/4G networks and improving the data experience. Strong mobile data revenue growth is a bright spot but this will be partly offset by SMS/voice revenue declines, especially in the more developed markets. ASEAN telcos’ share prices have also done fairly well, up 14.4% YTD and 52.2% since 2011 on average, reducing the odds of further sector-wide outperformance in 2015. We remain Overweight on Indonesia and Neutral on Singapore and Thailand while cutting Malaysia from neutral to Underweight. Our top picks are Telkom Indonesia, SingTel and Thaicom. We downgrade DiGi to Hold and upgrade Indosat to Add.
AirAsia Bhd - The inflection point is now
AirAsia’s 9M14 core earnings look 37% better than our previous numbers, as yields stabilised in the 3Q, instead of continuing the yoy weakening trend that was evident since 2Q13. We believe yields in Malaysia will strengthen yoy in 4Q14, leading to higher yoy core earnings for the first time in almost two years. This is the inflection point that will finally move the share price. Lower jet fuel prices literally add fuel to the fire, lowering costs dramatically and allowing us to raise our FY14 core EPS by 260% (from a low base), while our FY15-16 core EPS forecasts are raised 28-36%. We reiterate our Add call and raise our target price, still based on 1.7x P/BV (average since 2008).
AMMB Holdings - Not in the mood to lend
Excluding one-off divestment gains, AMMB’s annualised 1HFY3/15 net profit was 9.6% below our FY14 forecast, though it was in line with consensus (2.4% short). This was because we were over-optimistic on our forecasts for revenue and loan loss provisioning (LLP). The 12 sen net interim DPS was also below expectations. We are raising the projected LLP by 40-100% and trimming the assumed lending yield by 5bp. This brings down our EPS forecasts and DDM-based target price (COE of 10%; LT growth of 4%) despite the roll-over of valuation to end-15. Notwithstanding the below-sector valuations, AMMB remains a Hold in view of the concerns over (1) weak loan growth, (2) margin contractions, and (3) a rise in credit costs. We prefer Maybank.
Kuala Lumpur Kepong - 4Q losses from downstream
MSM Malaysia Holdings - Profit margins hit by new APs
Star Publications - Not so shiny
Economic Update - Malaysia to be a RMB hub
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