Maxis’ FY19 core net profit of RM1.5bn (-14% YoY) met expectations. Declared fourth interim 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 the silver lining after last year’s repricing exercise and sub acquisition is gaining traction. We reiterate HOLD with lowered DCF-derived TP of RM5.17. Downside is limited by dividend yield of 3.7%.

Within expectation. 4Q19 core net profit of RM344m (-5% QoQ, +33% YoY) brings FY19 sum to RM1.5bn (-14% YoY). This is in line with expectations, forming 96% of HLIB and consensus full year estimates, respectively. One-off adjustments include forex gain and its tax effect totalling a net sum of +RM19m.

Dividend. Declared forth interim tax exempt (single-tier) dividend of 5.0 (4Q18: 5.0) sen per share, representing 103% payout ratio. Ex-date on 17 Mar. YTD DPS amounted to 20 sen (FY18: 20 sen), in line with our expectation.

QoQ. Top line gained 13% mainly driven by non-core device sales which strengthened by 79%. Service revenue added 3% thanks to higher fixed (+61%) and fibre (+9%) contributions while mobile was flat. However, bottom line fell by 5% to RM344m due to higher expenses (especially traffic, staff, operation and maintenance costs) despite lower D&A (-11%) and effective corporate tax rate (-1ppt).

YoY. Revenue inched up 6% to RM2.6bn stimulated by stronger device sales (+55%), more than sufficient to offset the decline in service revenue (-3%). The drag in service revenue was mainly attributable to mobile which contracted 7% as U Mobile wholesale contribution gradually phased out. In the absence of one-off expense amounting to RM250m to enhance fibre and enterprise product quality and offerin gs which occurred in 4Q18, core net profit gained 33%.

YTD. For the same explanations above, turnover was ticked up 1% at RM9.3bn and bottom line fell by 14%.

Postpaid. Subscriber base continued to climb in 4Q19, topping 3.4m after adding 140k (or +4%) QoQ while ARPU was resilient at RM90. Postpaid revenue, excluding wholesale (U Mobile) and M2M contributions, increased by 2% QoQ to RM974m. Data usage per sub expanded 2% QoQ to 15.4GB per month.

Prepaid. Amid pre-to-postpaid migration as well as deteriorating migrant market, Maxis continued to experience churn of 101k (or -2%) subs QoQ to a base of 6.2m while ARPU expanded RM1 QoQ to RM42. Shockingly, mobile internet usage per sub has decreased 3% QoQ to 14.7GB per month.

Fibre. Added 25k QoQ in 4Q19 to top a total base of 369k which can be broken down into 327k and 42k of residential and business users, respectively.

FY20 guidance. (1) Flat to low single-digit increase in service revenue; (2) Normalized EBITDA to be flat to single digit gain; (3) Base capex of RM1bn per year; (4) Growth capex of RM1bn over 3 years; and (5) Operating FCF to be in line with FY19.

Forecast. Update model with latest financial figures and backloaded growth capex. In turn, FY20-21 EPS are toned down by 4% and 12%, respectively. Reiterate HOLD with lowered DCF-derived TP of RM5.17 (from 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.

Source: Hong Leong Investment Bank Research - 21 Feb 2020