Maxis’ 9M19 core net profit of RM1.2bn (-23% YoY) met expectations. Declared third dividend of 5.0 sen per share. Postpaid (excluding wholesale and M2M) has regained growth while prepaid remained soft on the back of stubborn attrition. Home fibre was silver lining 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. 3Q19 core net profit of RM361m (-8% QoQ, -30% YoY) brings 9M19 sum to RM1.2bn (-23% YoY). This is in line with expectations, forming 74% and 72% of HLIB and consensus full year estimates, respectively. One-off adjustments include forex gain and its tax effect.

Dividend. Declared third interim tax exempt (single-tier) dividend of 5.0 (3Q18: 5.0) sen per share, representing 109% payout. Ex-date on 28 Nov. YTD DPS amounted to 15 sen (9M18: 15 sen).

QoQ. Top line gained 4% mainly driven by non-core device sales which strengthened by 20%. Service revenue added 1% thanks to mobile +1%, fixed +4% and fibre +11%. However, bottom line fell by 8% to RM361m due to higher expenses (especially traffic, operation and maintenance costs) and D&A (+17%).

YoY. Revenue inched up 1% to RM2.3bn due to stronger device sales (+49%), more than sufficient to offset the decline in service revenue (-4%). The drag in service revenue was mainly attributable to mobile which contracted 6% as prepaid subs and ARPU declined. On the back of higher traffic cost (+22%) and D&A (+33%), core net profit tumbled 30%.

YTD. For the same explanations above, turnover was rather flat at RM6.7bn and bottom line fell by 23%.

Postpaid. Sub base continued to climb in 3Q19, topping 3.2m after adding 128k (or +4%) QoQ but ARPU fell by RM1 QoQ to RM90 which may be attributable to down trading trends as well as higher take up of supplementary lines. Postpaid revenue, excluding wholesale (U Mobile) and M2M contributions, increased by 1% QoQ to RM979m. Data usage per sub expanded 11% QoQ to 15.1GB per month.

Prepaid. Amid pre-to-postpaid migration as well as deteriorating migrant market, Maxis continued to experience churn of 89k (or -1.4%) subs QoQ to a base of 6.3m while ARPU remained stable at RM41. Mobile internet usage per sub has increased 11% QoQ to 15.2GB per month.

Fibre. Added 34k QoQ in 3Q19 to top a total base of 344k which can be broken down into 305k and 39k of residential and business users, respectively.

FY19 guidance was unchanged. (1) Low single-digit decline in service revenue; (2) Normalized 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 - 4 Nov 2019