Results

• After one-off adjustments, FY15 core net profit of RM1.9bn came in within expectations, accounting for 97% and 103% of HLIB and street’s full year estimates, respectively.

Deviations

• Dividend disappointment.

Dividend

• Declared 4th interim single-tier tax-exempt dividend of 5.0 sen (3Q14: 8.0 sen) per share, ex-date on 25 Feb 2015. This represents 80.6% payout.

• YTD dividend amount to 20 sen per share (FY14: 40 sen).

Highlights

• Despite the intense price competition, Maxis was able to grow its FY15 service revenue by 3.8% yoy with stronger contribution from both prepaid and postpaid. This was also achieved on the back of shrunk subscriber base of 11.6m (FY14: 11.9m) with focus on high value customers.

• Prepaid: 4Q15 sales declined 3.3% qoq as 3Q’s high base was assisted by festivity but FY still recorded a commendable growth of 6.2% yoy. Mobile internet (MI) prepaid users stood at 7m, generating 33% of prepaid sales vs. 25% a year ago. Smartphone penetration was 67% vs. 54% in 4Q14. Traction continued in migrant segment with a larger base. ARPU was stable at RM39 implying churners are of low value.

• Postpaid: MaxisONE plan users gained 100k to 623k (22.5% of postpaid base) with stable ARPU of RM150/mth. Overall base continued to fall to 2.8m (-19k qoq and -44k yoy). Those attritions are perceived to be low value subscribers as ARPU increased sharply to RM102 (+RM4 qoq and yoy).

• Home fibre sub base has reached 118k vs. 80k in FY14 while U Mobile domestic roaming contribution upped 11% qoq to RM69m.

• MI penetration stagnated at 70% level but both prepaid and postpaid data usage continued to trend up topping 1.5GB/mth and 1.9GB/mth, respectively. There are 2.4m LTE subs consuming more than 2.5GB data per month.

• FY16 guidance: service revenue, absolute EBITDA and base CAPEX to be at similar level to FY15.

Catalysts

• Higher smartphone penetration and LTE coverage boosting data ARPU, network infrastructure outsourcing.

• Continuous momentum of #Hotlink and MaxisOne Plan.

Risks

• Regulatory, competitive and execution risks.

Forecasts

• Lowered dividend payout ratio which in turn led to marginal revision of FY16-17 EPS by +0.6% and +1.1%, respectively.

Rating

HOLD , TP: RM6.40

Positives

• Network sharing, prepaid tax pass through, strong postpaid ARPUs (still the highest in the industry) and smartphone penetration.

Negatives

• Access pricing revision, higher cost for spectra and price war.

Valuation

• Reiterate HOLD with unchanged DDM-derived fair value of RM6.40 based on WACC of 5.4% and TG of 0%.

Source: Hong Leong Investment Bank Research - 5 Feb 2016