Results

1Q13 core net profit of RM520.0m came in within expectations, accounting for 26% and 24% of HLIB and street’s full year estimates respectively.

One-off adjustments considered for comparison include: a. 1Q12: last mile broadband tax incentive of RM16m. b. 4Q12: accelerated depreciation amounted to RM126m, asset write-off of RM3m and additional tax effects of RM32m associated to those adjustments. c. 1Q13: accelerated depreciation of RM60m and additional tax effects of RM15m associated to those adjustments.

Deviations

In line.

Dividend

As expected, Maxis declared 1st interim single-tier taxexempt dividend of 8 sen per share, ex-date on 29th May.

Maxis reiterated their commitment of RM3.0bn (40 sen per share) dividend distribution in FY13 which is in line with our forecast, commanding a yield of 5.74%, still highest amongst its peers.

Highlights

While mobility revenue contribution remained relatively flat, 1Q13 revenue gained satisfactorily (+1% yoy, +4.4% qoq) on the back of double digit improvements in fixed, fibre and hubbing business segments.

Within mobility, non-voice revenue grew 7.3% yoy and 3.5% qoq reaching RM1.04bn, sufficiently offset the decline in voice revenue.

Subscriber acquisition gathered momentum witnessing 144k net adds with postpaid to prepaid mix of 1:2.

With 39% of 8.5m active mobile internet users equipped with smartphone, internet and data (non-SMS) revenue grew 8.5% qoq to account for 69% of non-voice revenue.

Although U Mobile’s roaming contribution grew by 29% qoq to RM40m, Maxis guided it to remain at this level in coming quarters. We perceive this to be too conservative as data usage trend continue to grow exponentially.

Catalysts

Higher smartphone penetration boosting data ARPU, synergistic product bundling with Astro, network infrastructure outsourcing and workforce rationalization.

Stronger than expected home fibre internet take up rate.

Risks

• Government, regulatory, industry and execution risks.

Forecasts

• Maintained.

Rating

BUY, TP: RM7.29

• Positives - New business potential in converged services, strong postpaid ARPUs (despite recent contraction, still the highest in the industry) and smartphone penetration.
• Negatives - Initially low margin fibre services would depress profitability, weak ARPUs.

Valuation

Reiterate BUY call on the stock with unchanged DDM derived TP of RM7.29 based on WACC of 6.3% and unchanged TG of 1%.

We continue to like Maxis for its long term prospect under new leadership. Although total potential return is only slightly above 10%, we believe the market will continued to favour the stocks as our investment thesis of improving prospects under new leadership is gaining traction among investors.

Source: Hong Leong Investment Bank Research - 10 May 2013