Maxis’ 1Q19 core net profit of RM404m (+56% QoQ, -18% YoY) met expectations. Declared first dividend of 5.0 sen per share. Postpaid and prepaid showings were weak as overall performance were impacted by lower wholesale, roaming and migrant market contributions. We reiterate HOLD with unchanged DCF-derived TP of RM5.20. Downside is limited by dividend yield of 3.6%.

Within expectation. 1Q19 revenue of RM2.2bn yielded a much anticipated core net profit of RM404m, which accounted for 26% and 24% of our and consensus full year forecasts, respectively.

Dividend. Declared first interim tax exempt (single-tier) dividend of 5.0 (1Q18: 5.0) sen per share, representing 96% payout. Ex-date on 29 May.

QoQ. In this seasonally weaker quarter, top line was down by 9% attributable the drag from both prepaid (-6%) and postpaid (-5%) revenues, as well as device sales (-29%). However, core net profit was 56% higher thanks to the absence of one-off expense 4Q18 which amounted to RM250m to enhance fibre and enterprise product quality and offerings.

YoY. Revenue was unchanged as the higher device sales were completely offset by the decline in service revenue. Within the mobile revenue, prepaid’s contraction (-6%) continued to outpace postpaid’s gain (+2%). Despite the flattish turnover, core earnings fell 18% weighed down by higher staff, O&M and D&A charges.

Postpaid. Sub base continued to climb in 1Q19, topping 3.3m after adding 126k QoQ but ARPU slumped by RM6 QoQ to RM88 which may be attributable to down trading trends as well as higher take up of supplementary lines. Postpaid revenue moderated to RM1bn or down 5% QoQ as wholesale and roaming revenues softened. Smartphone penetration inched up to 88% while data usage was stable at 12.2GB per month.

Prepaid. Amid pre-to-postpaid migration as well as deteriorating migrant market, Maxis continued to experience attrition of 143k subs QoQ to a base of 6.5m as ARPU fell RM2 QoQ to RM40. With smartphone penetration stood at 84%, mobile internet usage has surged 72% YoY and 11% QoQ to 11.5GB per month.

Fibre. Added 31k accounts in 1Q19 to top a total base of 280k which can be broken down into 251k and 29k of residential and business users. Despite this encouraging operational data, quarterly revenue remained stagnant at RM80m as a result of aggressive re-pricing exercise in 2H18.

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

Forecast. Unchanged as results were in line. Reiterate HOLD with unaltered DCF-derived TP of RM5.20, with 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 - 29 Apr 2019