Results

• After one-off adjustments, 1Q16 core net profit of RM482m came in within expectations, accounting for circa 25% of HLIB and street’s full year estimates, respectively.

Deviations

• None.

Dividend

• Declared 1st interim single-tier tax-exempt dividend of 5.0 sen (1Q15: 5.0 sen) per share as expected. Ex-date on 27 May.

• Airwave fee impact on dividend will only be evaluated once the pricing is made known.

Highlights

• Despite the seasonal weakness, 1Q16 revenue was largely sustained at 4Q15’s level while profitability saw a mild growth. Enterprise fixed and integrated services were the main drivers offsetting the mobile’s softness due to prolonged competition. Again, this was achieved on the back of a shrunk subscriber base of 11.2m, down from 11.6m in 4Q15.

• Prepaid: 1Q16 sales declined 3.5% yoy and 2.5% qoq due to soft acquisition momentum in a price-focused market. While ARPU remained stable at RM39, it has recorded net churn for past 3 consecutive quarters of total 872k subs. To mitigate voice and SMS decline, Maxis has focused on growing mobile internet (MI) ARPU. MI adoption among prepaid RGS base has attained more than 50%.

• Postpaid: After adding 149k in 1Q16, MaxisONE plan has 962k subs yielding stable ARPU of RM150. Sub base trended down and 2Q16 is expected to see greater port out impact associated to recent large data quota debacle. Maxis saw improvement after interim automatic 3GB upgrade while pending more compelling product updates.

• Home fibre gained 8k subs in 1Q16 to a total of 126k

• U Mobile domestic roaming contribution rose 11.6% qoq to RM77m, implying significant traffic growth traction.

• MI penetration stagnated at 70% level but both prepaid and postpaid data usage continued to trend up topping 1.6GB/mth and 1.9GB/mth, respectively. There are 3.3m LTE device users consuming 2.6GB data per month, on average.

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

• Unchanged.

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 DCF-derived fair value of RM6.40 based on WACC of 5.4% and TG of 0%.

Source: Hong Leong Investment Bank Research - 22 Apr 2016