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JKSB Full Year Highlights_Dialog Axiata PLC (DIAL)_CY17

DIAL reported full year earnings of Rs. 10.8bn (+19% YoY) for CY17, in-line with our projection of Rs. 11.0bn. Bottom line growth was driven by a moderate increase in revenue (+9% YoY) coupled with a healthy expansion in EBITDA margin (+2.3ppt YoY) supported by cost savings initiatives (which resulted in a 2.3ppt YoY improvement in DIAL’s cost to revenue ratio for the year stemming from cost savings of >Rs. 4bn). At a subsidiary level, DTV reported a 14% YoY increase in full year net loss with a strong 49% YoY increase in EBITDA being offset by higher depreciation charges and forex losses, while DBN reported positive NPAT of Rs. 1.8bn for the year (vs. a net loss of Rs. 385mn in CY16) supported by strong growth in home broadband revenues (+53% YoY) and EBITDA margin expansion (+13 ppt YoY). Notably, 4G device penetration is increasing sharply on DIAL’s network - at 25% penetration as at end 4QCY17 vs. 16% penetration as at end 4QCY16- with roughly 70% of new devices added being 4G compatible, supporting increased data usage and data traffic. With 4G activation, data revenues are estimated to increase by >50% (>20% increase in total mobile revenue), suggesting strong topline upside going forward. Given the need for additional spectrum to support growing bandwidth needs, DIAL has now refarmed part of its 7.5MHz of spectrum allocation in the 900 MHz band  - previously used for voice - for 4G mobile data usage in rural districts. The Group is looking at co-locating all of its sites with 4G by end CY18 (4G population coverage was 43% as at end Dec 2017 while 3G coverage was at 86%).

 We project full year earnings of Rs. 12.0bn (+12% YoY) for CY18, supported by continued growth in mobile data and fixed data revenues - amid rapid subscriber acquisition and increased usage - coupled with a slightly lower cost to revenue ratio, while increased 4G take up should also support margin improvement (due to better cost efficiency vs. 3G). DIAL trades at a relatively attractive CY18E P/E of 9.2x at its current price of Rs.13.60, at a discount to our coverage universe P/E.