Maxis’ FY18 core net profit of RM1.6bn (-16% YoY) was a miss mainly due to the one-off expense. Declared fourth dividend of 5.0 sen per share. Postpaid remained the bright spot and the expense of prepaid. Maxis shared its ambition to achieve RM10bn revenue in 2023 leveraging on convergence and ICT services. We reiterate HOLD with lower DCF-derived TP of RM5.20. Downside is limited by dividend yield of 3.5%.

Below expectation. FY18 revenue of RM9.2bn yielded a disappointing core net profit of RM1.6bn (post-MFRS 15), which accounted for 89% and 90% of our and street’s full year forecasts, respectively.

Dividend. Declared fourth interim tax exempt (single-tier) dividend of 5.0 sen per share (4Q17: 5.0), representing 88% payout. Ex-date on 28 Feb. YTD dividend amounted to 20.0 sen (FY17: 20.0) per share, in line with our projection.

QoQ. Top line was up 8% attributable higher contributions from postpaid (+3%) and device (+72%) as a result of innovative device ownership program, Zerolution360. However, core net profit plunged by 50% mainly due to on-off expense amounted to RM250m to enhance fibre and enterprise product quality and offerings.

YoY. Revenue gained 3% thanks to acceleration in postpaid (+6%), device (+16%) and home fibre (+14%), more than sufficient to offset the weakness in prepaid (- 6%). Nonetheless, for the same reason mentioned above, bottom line fell 50%.

YTD. Turnover declined 2% mainly due to deterioration in prepaid. While, core earnings also contracted 16% impacted by the one-off expense.

Postpaid. Sub base continued to climb in 4Q18, topping 3.1m after adding 80k QoQ while ARPU strengthened by RM1 QoQ to RM94. Postpaid revenue sustained above RM1bn after gaining 3% QoQ and 6% YoY. Smartphone penetration maintained at 87% while data usage surged 37% YoY and 4% QoQ to 12.2GB per month.

Prepaid. Amid pre-to-postpaid migration, Maxis continued to experience attrition but at a slower rate of 29k subs QoQ (3Q18: -108k) to a base of 6.6m while ARPU was resilient at RM42. With smartphone penetration stood at 83%, mobile internet usage has surged 76% YoY and 2% QoQ to 10.4GB per month.

RM10bn sales ambition. Internally target to achieve this milestone by 2023 with aspiration to be Malaysia’s leading converged communications and digital services company. Besides fixed and mobile, it will also embark on managed services, cloud services and IoT solutions.

FY19 guidance. (1) Service revenue to see single-digit decline; (2) EBITDA to fall by mid-single-digit; (3) Base capex of RM1bn per; (4) Growth capex of RM1bn over 3 years; and (5) Operating FCF to be in line with FY18.

Forecast. We slashed our FY19-20 core earnings by 23% and 16%, respectively after incorporating latest data points and guidance.

Reiterate HOLD even after our DCF-derived TP is cut by 8% to RM5.20, reflecting our forecast revision. Our valuation parameters are 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 - 18 Feb 2019