• Maxis posted a strong set of results with 3Q17 core earnings rising 9% yoy and 16% qoq to RM562m while that of 9M17 grew 9% to RM1.6bn, coming in at 81% of our estimates.

• These growths were on higher postpaid revenues and gains from cost optimisation in 3Q17, partially offset by lower prepaid revenues from SIM consolidation.

• A third interim DPS of 5sen was declared, bringing total DPS declared to 15sen and implying a 75% payout YTD.

• With earnings coming in ahead of expectations, we raised FY17E earnings by 6% an revisited FY18/19E. Maintain HOLD with higher DCF-derived TP of RM5.70 (from RM5.60).

A strong tone

Maxis’ core earnings growth were driven by the postpaid service revenue (+9.3% yoy to RM1.1bn) on higher subs (2.8 million subs) and higher ARPU (+RM2 yoy to RM102/mth) which more than offset weaker prepaid service revenue. Overall, 3Q17 EBITDA margin expanded to 54.2%. The growth was also underpinned by lower direct costs following better cost optimization achieved. Overall, 9M17 core earnings rose 9% to RM1.6bn while EBITDA margin expanded to 52.4% to run ahead of our estimates at 81%.

Strong sequential rebound

Sequentially, earnings surged 16% qoq led by postpaid service revenues (+5.7% qoq) and stable ARPU albeit this was partially offset by weaker prepaid on the back of SIM consolidation. ARPU for prepaid remained stable at RM42/mth as mobile internet remains high.

Leading the way

Maxis continues to dominate the sector with as it commands the highest ARPUs for the postpaid and prepaid segment amongst cellcos. At this juncture, its 4G LTE coverage is ahead of Digi’s at 89% vs 87% while average data usage per user has grown strongly to 7.4GB/mth from just 4.4GB/mth a year ago.

Revisiting our forecasts

In the wake of the strong 3Q17 earnings, we raised our FY17F earnings by 6% and revisited our FY18/19E earnings estimates to factor in potential drop in 2G/3G sharing revenue from U Mobile

Maintain HOLD; higher TP of RM5.70

We raised our DCF-derived TP to RM5.70 (from RM5.60) and maintain our HOLD call. While we are encouraged by the growing postpaid revenue and stable prepaid business as well as robust margins, we are cautious on the sector’s competitive landscape while Maxis have also reduced dividend payouts.

Source: BIMB Securities Research - 26 Oct 2017