• 1Q18 core earnings came in flat yoy to RM510m and fell 2% qoq amidst weaker service revenue for the prepaid segment; overall, results were in line with expectations at 26%.

• Service revenue was notably weakened by the prepaid segment amidst stiff competition but was partially offset by lower opex.

• A first interim DPS of 5sen was declared, implying a 75% payout.

• Maintain HOLD with an unchanged DCF-derived RM5.70 TP.

Challenging condition persists

Maxis’ 1Q18 weak performance continue to underline the challenging market condition. Core earnings was flat yoy but declined 2% qoq as service revenues weakened owing to the competitive prepaid space. Cost saving initiatives carried out in FY17 paid off as the lower O&M (operating & maintenance) expense shored up core EBITDA which only fell 0.4% yoy and 2.5% qoq. Overall, core earnings were flat yoy and dipped 2% qoq to be in line with ours and consensus estimates.

MFRS 15 impact

The new accounting standard led to higher opex owing to upfront subsidy recognition instead of amortisation over the contract period. Similarly, device bundled with contracts is recognised separately as a device sale which was previously lumped as service revenues. The new standards have no impact to cashflows. Management has tweaked its 2018 guidance to reflect the MFRS15 standards while retaining its conservative 2018 outlook.

New value product to capture rival prepaid subs

Launched in mid-1Q18, the new Hotlink Postpaid Flex, starting from RM30/month, is Maxis’ response to stiff competition in the prepaid space, in our view. Management hinted that this is likely to dilute its reported Postpaid ARPU, over time, but the brand distinction should see limited impact to the positioning of the MaxisONE brand.

Maintain HOLD; higher TP of RM5.70

We remain unexcited by the outlook of the company and the sector as a whole. Product innovation is key while cost optimisation is increasingly crucial. Nevertheless, its dividend yield is decent at current level. We retain our HOLD rating on Maxis with a DCF-derived TP of RM5.70.

Source: BIMB Securities Research - 20 Apr 2018