Maxis reported a modest set of results: 6M18 core net profit was flat at RM990m as the lower operating and finance costs offset a 3.7% decline in service revenue. Management maintained its 2018 EBITDA guidance (high-single-digit decline) and quarterly dividend payout of 5 sen. Broadly, the results are within market and our expectations. We maintain our SELL with an unchanged DCF-derived TP of RM5.00. At 24x 2019E PER, valuation looks rich, considering the competitive market environment and a likely EPS contraction in 2018-19.

6M18 Core Net Profit Flat at RM990m, Broadly Within Expectations

Maxis’s 6M18 core net profit was flat at RM990m (-0.2% yoy); a 4.8% decline in revenue was largely cushioned by lower operating and finance costs. The group’s 6M18 service revenue fell by 3.7% yoy to RM3.99bn due to lower numbers of subscribers (-6.5% yoy) and gradual termination of the U Mobile network-sharing arrangement. Meanwhile, its headline net profit fell by 6.7% yoy due to lower forex gains and an absence of material writebacks. Broadly, the results were within the street and our expectations – 6M18 net profit accounts for 50% of street and 52% of our full-year profit forecasts. Maxis maintained its quarterly dividend of 5 sen per share.

Sequentially Earnings Were Weaker Due to Higher D&A

Operationally, 2Q18 was a decent quarter; Maxis added 14k subscribers and grew its blended ARPU to RM58 (from RM56), leading to 1.7% growth in service revenue. However, the increase in marketing, operation & maintenance, depreciation and amortisation costs led to a 5.9% decline in 2Q18 core net profit to RM480m.

Management Maintains Guidance: EBITDA to Fall by High Single Digits

Management maintained its 2018 earnings guidance of a mid-single-digit decline in service revenue and high-single-digit decline in EBITDA.

Maintain SELL With An Unchanged Target Price of RM5.00

We maintain our earnings forecasts, SELL rating and DCF-derived 12- month target price of RM5.00. While Maxis’ current forward PER of 23.9x 2019E earnings is below its historical average of 24.5x, the valuation looks rich, in our view, considering the competitive market environment, fluid government policy outlook, and a likely EPS contraction in 2018-19. Upside risks include stronger earnings, and easing competition.

Source: Affin Hwang Research - 19 Jul 2018