- We maintain our HOLD call on Maxis at unchanged DCF-derived fair value of RM7.40/share. Maxis registered core net profit of RM550mil for its 3Q13 (excluding a one-off Career Transition Scheme (CTS) cost of RM76mil) which brought 9M13 core earnings to RM1.6bil. This is within expectations accounting for 79% of our FY13F earnings and 76% of consensus.

- However, Maxis saw its second consecutive quarter of net churn in 3Q13 i.e. -660 subscribers after 2Q13’s net churn of 263 subscribers – mainly coming from the prepaid segment. On the contrary, key rival Digi has seen strong net additions of 179 subscribers (2Q13) and 276 subscribers (3Q13) over the past two quarters.

- The contraction in YoY blended RPM is moderating in-line with industry while ARPUs are also seeing the past three quarters’ contraction moderating (See Chart 1). EBITDA margin has also been gradually recovering to >50% in the past two quarters, on a positive note. The CTS is expected to result in some cost saving, but only marginally, as it is meant to refresh talent rather than an outright cost down exercise. Nonetheless, staff force is reduced by 500 to circa 3,000 now.

- Management revised down Maxis’ FY13 guidance. Revenue growth is guided lower at 2% (vs. mid single digit growth earlier) while FY13F EBITDA margins is expected to register at 48%-48.5%. This is mainly driven by: (1) The scaling back of device revenues – Maxis is scaling back on low margin, outright device sales, but will still focus on sales of devices on contract basis; (2) Underperformance in the prepaid segment.

- Maxis’ new CEO highlighted broadly a few key issues that the group aims to address: (1) Regain market share in the prepaid segment; (2) Pricing data “correctly”; (3) Less focus on EBITDA margins but more on absolute EBITDA growth; (4) Improving network quality, particularly for voice; (5) Spending capex “efficiently”, though this may not translate into outright capex reduction immediately. More details on Maxis’ new strategy to be unveiled in December.

- A third interim dividend of 8sen/share was declared, bringing 9M13 DPS to 24sen/share. Maxis’ FY13F-14F dividend yield is relatively attractive against local peers at 5.6%. Our projections model in 143%-147% payout ratio. 

Source: AmeSecurities