Results

• After one-off adjustments, 1H16 core net profit of RM898m accounted for circa 46-47% of HLIB and street’s full year estimates, respectively.

• Deemed satisfactory considering stronger 2H16 with new postpaid and prepaid plans introduced in 2Q16 to contribute positively ahead.

Deviations

• None.

Dividend

• Declared 2nd interim single-tier tax-exempt dividend of 5.0 sen (2Q15: 5.0 sen) per share as expected. Ex-date on 26 Aug. YTD amounted to 10 sen per share, on par with 1H15.

Highlights

• Softer 2Q16 was not a surprise after the postpaid data quota discrimination which had taken a toll on its subscriber base, shrinking since 3Q15. Fixing with new larger data quota offerings coupled with pooling feature was rather effective but with higher costs. Prepaid Hotlink FAST was also launched in 2Q16. Both are gaining tractions and expected to contribute positively in coming quarters.

• Prepaid: 2Q16 sales declined circa 5% yoy and qoq on the back of persistent churn and weaker ARPU. To mitigate voice and SMS decline, Maxis has focused on growing mobile internet (MI) ARPU. MI adoption among prepaid RGS base has attained close to 52%. Share of foreign worker segment was stable.

• Postpaid: After adding 330k in 2Q16 (largest net adds in the last 4 quarters), MaxisONE plan has 1.3m subs yielding stable ARPU of RM143. However, overall sub base continued to trend down while ARPU remains stable at RM102 implying the attritions are of low value, not a major concern.

• Home fibre gained 7k subs in 2Q16 to a total of 133k.

• U Mobile domestic roaming contribution rose 12.3% qoq to RM87m, implying significant traffic growth traction.

• MI penetration stagnated at 70% level but both prepaid and postpaid data usage continued to trend up topping 2GB/mth and 3GB/mth, respectively. There are 3.6m LTE device users consuming 3.7GB 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 - 21 Jul 2016