Results

FY13 core net profit of RM2,149m came in within expectations, accounting for 97.3% and 99.9% of HLIB and street’s full year estimates respectively.

One-off adjustments considered for comparison include: a. 4Q12: accelerated depreciation of RM126m, write-off of RM3m and related tax effects of RM32m adjustment. b. 3Q13: career transition scheme (CTS) of RM102m and tax effects of RM26m associated with this adjustment. c. 4Q13: CTS of RM41m, accelerated depreciation and change in estimated asset useful lives of RM39m, provision for contract obligations of RM65m, write down of assets of RM87m and related tax effects of RM58m.

Deviations

In line.

Dividend

Declared 4th interim single-tier tax-exempt dividend of 8 sen per share, ex-date on 7th March 2014.

Proposed a final single-tier tax-exempt dividend of 8 sen per share subject to shareholders’ approval.

These bring FY13 YTD dividend to 40 sen per share (2012: 40 sen), in line with our expectations and guidance.

Maxis reiterated commitment of RM3.0bn (40 sen per share) dividend for FY14 which is in line with our forecast, commanding a yield of 5.7%, still highest among peers.

Highlights

FY13 top line was largely supported by data, enterprise and home revenues offsetting the declining voice and SMS sales. Mobile enterprise segment, which currently contribute ~RM1bn per annum is seen as a longer term growth driver.

Expect to make a strong comeback in prepaid segment leveraging on #Hotlink and Hotlink 4G.

Blended smartphone penetration increase 3-ppt qoq to 56% with 520k LTE-compliant handset users.

FY14 guidance: top line growth of low single digit, lagging the sector’s expected growth of 5% and a weaker 1H14. EBITDA margin is expected to be stable while CAPEX will be more than RM1bn.

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

Updated model based on latest data resulting in revision of FY14-15 EPS by -4.0% and -2.9% respectively.

Rating

HOLD, TP: RM7.24

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, weakening ARPUs.

Valuation

Reiterate HOLD call as our DDM-derived TP was revised marginally by -0.7% to RM7.24 due to higher WACC of 6.30% (previously 6.26%) while TG of 1% is retained.

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 - 12 Feb 2014