Maxis’ 9M18 core net profit of RM1.5bn (-4% YoY) was in line. Declared second dividend of 5.0 sen per share. Postpaid remained the bright spot and the expense of prepaid while lower U Mobile’s DR contribution lingers on. Strong demand for its newly-revamped fibre products. It will pursue fibre access to achieve convergence. We reiterate HOLD with unchanged DCF-derived TP of RM5.68. Downside is limited by dividend yield of 3.7%.

Within expectation. 9M18 revenue of RM6.7bn was yielded a much-anticipated core net profit of RM1.5bn (post-MFRS 15), which accounted for 76% and 77% of ours and street’s full year forecasts, respectively.

Dividend. Declared third interim tax exempt (single-tier) dividend of 5.0 sen per share (3Q17: 5.0), representing 82% payout. Ex-date on 28 Nov. YTD dividend amounted to 15.0 sen (9M17: 15.0) per share.

QoQ. Top line was up 1% attributable to service revenue thanks to sustainable postpaid growth (+1.5%), sufficiently offset prepaid’s decline (-0.3%). Core net profit was higher by 8% as there were material savings in traffic, commissions and other direct costs.

YoY. Declined 3% chiefly due to lacklustre prepaid performance which fell 10% which more than offset the gains in postpaid (+3%) and home fibre (+13%). Subsequently, bottom line fell 8% due to higher cost structure.

YTD. Turnover declined 4% mainly due to deterioration in prepaid. In turn, core earnings also contracted 4% where higher cost base was cushioned by lower interest expense.

Postpaid. Sub base continued to climb in 3Q18, topping 3.1m after adding 85k QoQ while ARPU softened by RM1 QoQ to RM93. Postpaid revenue sustained above RM1bn after gaining 2% QoQ and 3% YoY. Smartphone penetration maintained at 87% while data usage surged 50% YoY and 5% to 11.7GB per month. U Mobile’s contribution is guided to decline sharply in 4Q18 as the termination of 3G Network Sharing and Alliance (NSA) Agreement will complete on 27 Dec 2018.

Prepaid. Blaming on price-focused competition, SIM consolidation and pre-to postpaid migration, Maxis continued to experience attrition of 108k subs QoQ to a base of 6.6m while ARPU was resilient at RM42. Prepaid internet continues to experience strong demand and accounted for 58% of prepaid revenue. Hotlink RED which provides free non-stop internet on leading 4G network has also attracted high value mobile internet users.

Fibre and MSAP. The recent offerings have attracted overwhelming response and expect to incur higher cost due to CPE replacement. Claiming that it is the sole access seeker in the current market, Maxis is determined to lease from others (besides TM) and build more in order to drive its convergence ambition.

Forecast. Unchanged as Results Were in Line.

Reiterate HOLD with unchanged DCF-derived TP of RM5.68 based on WACC of 6% and TG of 0.5%. 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 U Mobile’s 3G NSA termination and fibre expansion impacts.

Source: Hong Leong Investment Bank Research - 25 Oct 2018