Results

9M13 core net profit of RM1,626m came in within expectations, accounting for 75.7% and 75.8% of HLIB and street’s full year estimates respectively.

One-off adjustments considered for comparison include: a. 3Q12: accelerated depreciation of RM35m. b. 2Q13: accelerated depreciation of RM40m and additional tax effects of RM10m associated with this adjustment. c. 3Q13: career transition scheme (CTS) of RM102m and tax effects of RM26m associated with this adjustment.

Deviations

In line.

Dividend

As expected, Maxis declared 3rd interim single-tier taxexempt dividend of 8 sen per share, ex-date on 27th Nov.

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

As anticipated and highlighted before, CTS weighed down 3Q13 results causing EBITDA margin to plunge by 3.8-ppt qoq to 47.0%. However, if adjusted for this one-time cost, the figure would have been 51.5%, 2nd consecutive quarter above 50% mark. YTD margin at 50.2%.

As expected, U Mobile’s roaming contribution continued to grow, upped 4.3% qoq to RM49m.

The introduction of data locking feature, which promotes worry-free usage and prevents bill shock, may suppress short term revenue but believe that this will reward with longer term positive customer experience.

Blended smartphone penetration increase 1-ppt qoq to 53% with 355k LTE-compliant handset users.

LTE is >10% population coverage while 5.5k sites were HSPA+ enabled with 83% population coverage.

FY13 guidance: sales growth to lag behind market at 2-3% due to prepaid’s underperformance and pulling back of device outright sales. EBITDA margin of 48.0-48.5%. CAPEX at RM900m.

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

Reiterate HOLD call based on unchanged DDM-derived TP of RM7.29 using WACC of 6.3% and 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 - 13 Nov 2013