Maxis reported a modest set of results: 9M18 core net profit fell by 3% to RM1.51bn on lower revenue (-4%), partly cushioned by a 0.3-ppt improvement in EBITDA margin and lower finance costs. The 9M results are slightly above street and our expectations. Nonetheless, management has maintained its 2018 EBITDA guidance of a highsingle-digit decline, in anticipation of headwinds arising from the introduction of SST, termination of the U-Mobile contract and competition. We are raising our 2018E EPS forecast by 4% while maintaining 2019-20E estimates. We maintain our SELL rating with an unchanged DCF-derived price target of RM5.00. At 24x 2019E PER, valuation looks rich, considering the competitive market environment, heightened regulatory risks and a likely EPS contraction in 2018-19.

Weaker 9M18 Core Net Profit of RM1.51bn (-3%) Due to Lower Revenue

Maxis’ 9M18 core net profit fell by 2.9% yoy to RM1.51bn due to lower revenue (-4.2%), partly cushioned by an improved EBITDA margin and lower finance costs. 9M18 service revenue fell by 3.4% yoy to RM6.02bn due to a lower number of mobile subscribers (-5.3% yoy) and gradual termination of the U Mobile network-sharing arrangement, partly mitigated by higher mobile ARPU of RM57/month (from RM56) and a 22% growth in the number of home fibre subscribers. A sharp reduction in traffic, commission and direct costs helped lift the 9M18 EBITDA margin by 0.3ppt to 44.8%.

9M18 Results Slightly Ahead of Expectations, But We See a Weak 4Q

The results are slightly ahead of the street and our expectations – 9M18 core net profit accounts for 78% of street and 80% of our full-year profit forecasts. The earnings beat was attributable to higher-than-expected revenue from the U Mobile RAN sharing agreement and lower traffic, commissions and direct costs. Nonetheless, we still expect weaker earnings (qoq) in 4Q18 due to several headwinds including: (i) higher costs arising from reintroduction of the sales & service tax; (ii) declining revenue from the U-Mobile RAN share agreement (expiring end-2018); and (iii) ongoing competition in the mobile segment. Elsewhere, management has maintained its 2018 EBITDA guidance of a high-single-digit decline despite the decent 9M18 performance.

Maxis Declared 5 Sen Dividend for 3Q18

Management has maintained its quarterly dividend payout of 5 sen per share in 3Q18, bringing 9M18 dividends to 15 sen per share.

Source: Affin Hwang Research - 19 Oct 2018