• 2Q18 core earnings came in flat yoy to RM480m and fell 6% qoq on higher net opex and depreciation charge; overall 1H18 results were in line against our estimates at 50%.

• Opex rose on higher depreciation charge and marketing expense; as a result, postpaid service revenues grew steadily while prepaid saw some stability on qoq basis.

• A second interim DPS of 5sen was declared, implying 82% payout.

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

Remains uninspiring

Maxis’ 2Q18 results were uninspiring as core earnings fell 6% qoq and flat yoy. While service revenues for postpaid remains robust over both periods, prepaid was stable qoq basis but continues to decline over yoy basis amidst lower subscriber base (-40k from 1Q18). Over the 6- month period, core earnings were flat aided by lower effective tax rate and direct costs (incl. network, commission and traffic charges). Overall, 1H18 core earnings were 50% of ours and consensus 2018F estimates.

Marketing-driven cost increase

2Q18 net opex grew 3.5% qoq and 3.9% yoy amidst higher maintenance and marketing expense. Management attributed the latter to its World Cup screening sponsorship on RTM. Maintenance expense spiked in 2Q18 (+50% qoq) but we believe this was largely due to timing issues as 1H18 maintenance expense eased 6% to reflect the cost-saving measures carried out in FY17.

Unrivalled postpaid leadership

Maxis continues to lead in the postpaid segment with its commanding subscriber base of over 3 million. Maxis ONEPlan (MOP) subs inched further to sustain at over 2 million. The overall postpaid ARPU gained RM2 to RM94/month (1Q18: RM92) while data usage averaged at 11.2GB/month.

Costly endeavour?

Management hinted on growing further within fixed home broadband space. Details remain scarce at this juncture although it noted that discussions are ongoing with TM on the service fees to access FTTH. Given the competitive backdrop of the industry, cost optimisation is increasingly crucial.

Maintain HOLD; higher TP of RM5.70

We remain largely unexcited with the outlook of Maxis and the sector. However, 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 - 19 Jul 2018