Maxis’ 1Q18 core net profit of RM510m (-2% QoQ; flat YoY) was in line. Declared first dividend of 5.0 sen per share. Despite the seasonal weakness, 1Q18 performance was impacted by (1) prepaid churn; (2) lower DR revenue; and (3) lower MTR. Postpaid remained the bright spot but was unable to cushion the lethargic prepaid. We reiterate HOLD with unchanged TP of RM6.03. Downside is limited by dividend yield of 3.7%.

Within Expectations: 1Q18 revenue of RM2.2bn translated into a core net profit of RM510m (post-MFRS 15), accounting for 24% and 26% of HLIB and consensus full year forecasts, respectively.

Dividend: Declared first interim tax exempt (single-tier) dividend of 5.0 (1Q17: 5.0) sen per share, representing 77% payout. This will go ex on 28 May.

QoQ: Top line fell by 6% attributable to (1) persistent prepaid churn; (2) seasonal weakness; (3) lower contribution from U Mobile domestic roaming (DR); (4) lower mobile termination rate (MTR) effective 1 Jan 2018 (as highlighted in our sector report entitled “2018 outlook” dated 10 Jan 2018). Core net profit was down by 2% due to higher effective tax despite partly cushioned by lower D&A.

YoY: Declined 6% chiefly due to lacklustre prepaid performance which plunged 16% which more than offset postpaid’s 5% gain. However, bottom line improved 4% thanks to impressive cost savings initiatives.

Postpaid: Sub base continued to climb in 1Q18, topping 2.9m after adding 59k QoQ while ARPU softened by RM4 QoQ to RM92. Postpaid revenue recorded at RM985m, down 1% QoQ and 5% YoY. Innovative device and share line proposition has led to record high shared line acquisition and penetration via MaxisONE Share in 1Q18. Positive traction was also observed in converged plan through MaxisONE Prime as it continues to increase household value / ARPA through combination of mobile and fibre offerings. Besides, hybrid Hotlink Postpaid Flex saw encouraging momentum attracting entry-level postpaid sub and pre-to-post segment.

Prepaid: Lost 211k subs QoQ to a base of 6.8m with stable ARPU of RM41 blaming on price competition and prepaid to postpaid migration. However, prepaid internet continues to experience strong demand and accounted for 53% of prepaid revenue. Hotlink RED which was launched early 1Q18 is gaining traction. Enhanced internet proposition via refreshed mobile internet passes with more data has led to 20% YoY increase in the higher-end mobile internet sub.

2018 Guidance Post-MFRS 15: (1) Service revenue to decline mid-single digit (previously low-single digit); (2) EBITDA to decline high-single digit (previously mid single digit).

Forecast: Maintain.

Reiterate HOLD with unchanged DCF-derived fair value of RM6.03 based on WACC of 5.9% and TG of 0%. Maxis is still the largest telco in terms of revenue market share with quality of service as differentiation to drive leadership in data adoption. Focus will be on service impact due to lesser spectrum allocations and spectrum fee impact on dividend.

Source: Hong Leong Investment Bank Research - 20 Apr 2018