Maxis’ 9M20 core net profit of RM1bn (-8% YoY) was within expectations, at 76% of HLIB and 73% of consensus. Declared third interim dividend of 4.0 sen per share. Postpaid acquisition was revived with 46k net adds QoQ at the expense of ARPU erosion and prepaid which saw a 1% sub attrition. Home fibre was the silver lining with good traction on sub acquisition. Reiterate HOLD on the back of unchanged DC-derived TP of RM5.17.

Within expectations. 3Q20 core net profit of RM364m (+8% QoQ, +1% YoY) brought 9M20’s to RM1bn (-8% YoY) which matched expectations, accounting for 76% and 73% of HLIB and consensus full year forecasts, respectively. One-off item include forex gain and its tax effect totalling -RM1m.

Dividend. Declared third interim tax exempt (single-tier) dividend of 4.0 (3Q19: 5.0) sen per share, representing 85% payout ratio. Ex-date on 27 Nov. YTD dividend amounted to 12 sen (9M19: 15 sen) per share.

QoQ. Top line notched up 3% driven by both device (+9%) and service revenues (+2%). Within service revenue, enterprise services added 16%, followed by home fibre (+6%) and mobile (+1%). In turn, core net profit strengthened 8% to RM364m aided by lower D&A (-4%) and lower interest cost (-6%).

YoY. Revenue dipped 3% to RM2.2bn as the growths in enterprise services (+104%) and home fibre (+26%) were unable to offset the contractions in mobile (-6%) and device (-22%). However, bottom line expanded 1% thanks to lower D&A (-9%) and finance cost (-9%).

YTD. Top line was rather flattish at RM6.7bn as the higher contributions from enterprise services (+91%) and home fibre (+33%) were negated by mobile (-6%), while device was unchanged. Core earnings fell by 8% to RM1bn on the back of higher expenses and D&A (+7%) as a result of past core and growth capex.

Postpaid. Subscriber base added by 46k QoQ to 3.5m in 3Q20 thanks to strong preto-post momentum with value accretive Hotlink Postpaid. Meanwhile, ARPU eroded by RM1 QoQ to RM84 due to (i) decline in MTR; (ii) lack of roaming revenue as a result of travel curtailment; and (iii) dilution from entry point Hotlink Postpaid. Mobile internet usage per sub has increased by 9% QoQ to 20.2GB per month.

Prepaid. Maxis lost 67k (or -1%) subs QoQ to a base of 5.9m while ARPU was flat at RM40. Hotlink Prepaid Unlimited continues to have strong adoption. Mobile internet usage per sub fell by 3% QoQ to 19.0GB per month.

WBB. Subs gained 12k (or +11%) QoQ to a base of 30k supported by sustainable APRU of RM103. This is in line with Maxis strategy to address non-fibre homes.

Fibre. Added 13k QoQ in 3Q20 to top a total base of 424k which can be broken down into 377k and 47k of residential and business users, respectively. There is a strong adoption of MaxisONE Prime converged packages while continue to upsell higher speed packages (300Mbps, 500Mbps and 800Mbps).

Forecast. Unchanged as Results Are in Line.

Reiterate HOLD with unchanged DCF-derived TP of RM5.17, 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, but Covid -19 headwinds pose near term uncertainty.

Source: Hong Leong Investment Bank Research - 26 Oct 2020