Maxis’ 1H19 core net profit of RM795m (-19% YoY) met expectations. Declared second dividend of 5.0 sen per share. Postpaid was hit by lower wholesale contribution while prepaid was also soft on the back of stubborn attrition. Home fibre was the only bright spot after last year’s repricing exercise and sub acquisition is gaining traction. We reiterate HOLD with unchanged DCF-derived TP of RM5.20. Downside is limited by dividend yield of 3.6%.

Within expectation. 2Q19 core net profit of RM391m (-3% QoQ, -19% YoY) brings 1H19 sum to RM795m (-19% YoY). This is in line with expectations, forming 51% and 49% of HLIB and consensus full year estimates, respectively. One-off adjustments include forex gain and its tax effect.

Dividend. Declared second interim tax exempt (single-tier) dividend of 5.0 (2Q18: 5.0) sen per share, representing 98% payout. Ex-date on 29 Aug. YTD DPS amounted to 10 sen (1H18: 10 sen).

QoQ. Top line was down by 1% mainly dragged by postpaid’s 3% decline as a result of lower contribution from wholesale (U Mobile domestic roaming). Besides, prepaid and enterprise fixed also contracted marginally by 1% each, while home fibre was the only segment recording growth at 8%. In turn, bottom line fell by 3% to RM391m after it was subjected to a higher tax rate of 26.3% (1Q19: 24.8%).

YoY. Revenue fell by 2% driven by sub-par performances in postpaid (-14%), prepaid (-7%) and enterprise fixed (-3%), erasing the growth recorded by home fibre (+9%). On the back of higher direct cost (+6%) and D&A (+12%), core net profit tumbled 19%.

YTD. For the same explanations above, top and bottom lines fell by 1% and 19%, respectively.

Postpaid. Sub base continued to climb in 2Q19, topping 3.1m after adding 96k QoQ but ARPU fell by RM1 QoQ to RM91 which may be attributable to down trading trends as well as higher take up of supplementary lines. Postpaid revenue moderated to RM972m as wholesale revenues softened. Smartphone penetration was at 88% while data usage inched up 9% QoQ to 13.3GB per month.

Prepaid. Amid pre-to-postpaid migration as well as deteriorating migrant market, Maxis continued to experience attrition of 50k subs QoQ to a base of 6.4m but ARPU increased RM1 QoQ to RM41. With smartphone penetration at 84%, mobile internet usage has surged 19% QoQ to 13.7GB per month.

Fibre. Added 30k QoQ in 2Q19 to top a total base of 310k which can be broken down into 276k and 34k of residential and business users, respectively.

FY19 guidance was unchanged. (1) Single-digit decline in service revenue; (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 - 5 Aug 2019