Results

• 1Q15 revenue of RM2.15bn was translated into core net profit of RM453m, accounting for 22.5% of ours and streets full year estimates. This is deemed in line considering the seasonally weaker quarter while expecting GST boost in 2H15.

Deviations

• Largely in line.

Dividend

• Declared 1st interim single-tier tax-exempt dividend of 5.0 sen (1Q14: 8.0 sen) per share, ex-date on 27 May 2015. This represents 90.9% payout.

• To continue quarterly distribution based on minimum of 75% of consolidated PAT with implicit ceiling of FCF after deducting finance costs.

Highlights

• While rational, competition intensified in mobile internet (MI) and migrant segments. Nonetheless, Maxis bucked the trend by growing sequentially in a seasonally weak quarter thanks to strong prepaid momentum as strong net adds (+336k qoq) pushed the base closer to 9m.

• #Hotlink subs accounted for 52% of prepaid RGS. MI contributes 29% (vs. 21% in 1Q14) to prepaid revenue, sufficiently compensate the decline in SMS revenue.

• U Mobile’s domestic roaming contribution surged by 20% yoy and 11% qoq to RM61m.

• May bring forward investment thus surpassing guided CAPEX of RM1.1bn as current trends including revenue, sub net adds and data usage are favorable.

• The recent government’s call in reducing broadband pricing is applicable to large screen/dongle segment only and impact is expected to be immaterial.

• Continue to engage regulator but no update on low spectrum rebalancing exercise.

• Maintain guidance of low single digit top line growth even taking GST into consideration. Boost is likely at EBITDA level for half year period only.

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: RM7.11

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 and weakening ARPUs.

Valuation

Reiterate HOLD with unchanged DCF-derived TP of RM7.11 based on WACC of 5.4% and TG of 0.5%.

Source: Hong Leong Investment Bank Research - 28 Apr 2015