Results

1H13 core net profit of RM1,078m came in within expectations, accounting for 52.5% and 50.3% of HLIB and street’s full year estimates respectively.

One-off adjustments considered for comparison include: a. 2Q12: asset write-off amounted to RM94m coupled with last mile broadband tax incentive of RM10m. b. 1Q13: accelerated depreciation of RM60m and additional tax effects of RM15m associated to those adjustments. c. 2Q13: accelerated depreciation of RM40m and additional tax effects of RM10m associated to those adjustments.

Deviations

Largely in line.

Dividend

As expected, Maxis declared 2nd interim single-tier taxexempt dividend of 8 sen per share, ex-date on 4th Sept.

Reiterated their commitment of RM3.0bn (40 sen per share) dividend for FY13 which is in line with our forecast, commanding a yield of 5.6%, still highest among peers.

Highlights

YTD revenue grew 4.0% yoy to RM4.4bn thanks to contributions from all business segments. However, top line contracted by 1.4% qoq as 1Q13 enjoyed the full quarter boost from Apple iPhone5 sale. Excluding that, mobility revenue was actually flat qoq.

1H13 non-voice revenue grew 7.5% yoy to RM2.067bn, sufficiently offset the fall in voice and messaging revenues and accounting for 47.7% of mobile revenue (+2.3-ppt yoy).

2Q13 EBITDA of RM1.2bn came in strongly (+3.8% qoq and +5.3% yoy) on the back of lower sales & marketing and staff-related expenses, elevating margin to 50.8% (+2.6-ppt qoq and +0.9-ppt yoy).

As expected, U Mobile’s roaming contribution continued to grow, upped 17.5% qoq to RM47m in tandem with its growing subscriber base (doubled to circa 4m in 2Q13).

No 4G premium pricing over 3G services as Maxis believe the market is still pre-mature and target to achieve 20% population coverage by year end.

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

HOLD
, TP: RM7.29

Positives - New business potential in converged services, strong postpaid ARPUs (still the highest in the industry) and smartphone penetration.

Negatives - Initially low margin fibre services would depress profitability, weak ARPUs.

Valuation

We downgrade our call from BUY to HOLD after recent share price appreciation on the back of unchanged DDMderived 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. We believe the market will continue to favor the stocks as our investment thesis of improving prospects and leaner structure under new leadership is gaining traction among investors.

Source: Hong Leong Investment Bank Research- 7 Aug 2013