• 4Q18 core earnings slipped -1.7% and -2.1% for qoq and yoy respectively due to higher direct cost charged despite of pick-up in service revenue and device sales.
• FY18 core earnings fell -2.6% on lower prepaid revenue and was broadly in line with ours and consensus estimates.
• We revised down our earnings estimate by -1.4%/-3.8% for 2019F/20F following management guidance on 2019F EBITDA.
• Possibility on Sukuk issuance to fund RM1bn capex for MAX plan and to maintain 20sen annual DPS.
• Maintain HOLD with lower DCF-derived RM5.15 TP. While the convergence could provide growth, we concern on the increasing competition and inherent regulatory risk.

4Q18 earnings slipped by direct cost charged

Excluding one-off RM250m and other EIs, Maxis’ 4Q18 results core earnings slipped -1.7% qoq and -2.2% yoy. The increase in service revenues could not mitigate higher direct costs charged (network, traffic and O&M charges), resulting in lower core EBTIDA in 4Q18.

Accelerated decline in prepaid revenue for FY18

Despite robust postpaid service revenue growth in 2018 (+5.1% yoy), overall service revenue fell -1.8% as prepaid service revenue weakened (-11.4% yoy). Prepaid subs continue to decline (-387k to 6.6m) on migration into postpaid and increasing competition. Overall, FY18 core earnings met ours/consensus earnings estimates at 104%/102%.

Short-term earnings hiccup

Management guided its 2019F would deliver mid-single digit EBITDA drop following an end to a major network sharing arrangement, regulatory policies, and fibrenation marketing cost. We lower our earnings estimates by -1.4%/-3.8% for 2019F/20F.

MAX-imising long term prospect

It unveiled the MAX plan which underpins its strategy to become a convergence player; an additional RM1bn capex over 3 years on top of recurring RM1bn annual base capex. We believe its existing RM10bn Sukuk Programme could be one of the options for fund raising if required. Current net debt-EBITDA ratio is 1.86x. This allows Maxis to sustain its 20sen annual DPS while pursuing its growth strategy.

Maintain to HOLD; lower TP of RM5.15 (from RM5.35)

While the pursuit for convergence service provides growth opportunity from untapped markets, we are concern over the intensified capex needed. Within the fixed broadband space, we believe that competition has heated up drastically while regulatory risk is inherent amidst some confusion over the MSAP, for example.

Source: BIMB Securities Research - 18 Feb 2019