Result

• 4Q16 normalised PAT met expectation after rising 5.8% QoQ and 14% YoY to RM544m. Quarterly revenue increased 2.7% QoQ and 1.7% YoY to RM2.21bn on the back of higher ARPU despite less subscribers.

• Within forecast – Maxis’ performance was within expectation as twelve months’ normalized net profit made up 106% of our full year forecast. Revenue also met our forecast after accounting for 98% of our FY16 estimate.

• Higher profit margin – 4Q16 normalised PAT margin continued to improve after rising 0.8 percentage points to 24.6% (against 3Q16: 23.8%) while normalized EBIDTA margin increased 0.6 percentage points to 53.4%. Margins improved following ongoin operating cost control measures.

• Higher ARPU despite losing subscribers – Overall, blended ARPU in 4Q16 was slightly higher at RM57 (vs RM56 in 3Q16) with a smaller churn of 52k (vs 112k in 3Q16) as total subscribers declined to 10.85m from 10.9m in 3Q16.

• Flat prepaid revenue – Prepaid revenue was 0.2% QoQ higher but 1.3% YoY lower at RM1.02bn as ARPU increased to RM42 vs RM41 in 3Q16. Maxis lost 61k prepaid subscribers to 7.9m during the quarter (vs 101k churn in 3Q16).

• Postpaid stabilized – Postpaid revenue was 4.6% QoQ higher but 0.5% YoY lower at RM1bn vs RM960m in 3Q16 as ARPU increased to RM104 from RM100 in 3Q16. During the quarter Maxis added 34k postpaid subscribers (vs 18k in 3Q16) to 2.71m.

Earnings Outlook/Revision

• Forecast maintained – Our FY17 and FY18 estimates are maintained as we expect cost reduction measures to continue and subscribership to improve with lower churn rate.

• Higher gearing – Debt increased to RM9.25bn in 4Q16 from RM8.3bn 3Q16 due to financing of the spectrum fee of RM816.75m. As result, net debt/EBITDA rose to 1.88x in 4Q16 from 1.68x in 3Q16.

Valuation & Recommendation

• Maxis announced its final interim dividend of 5 sen per share, meeting full year forecast of 20 sen and translating into a yield of 3.2%. Due to its high gearing, we expect lower dividend of 16 sen for FY17 which translates into an unattractive yield of 2.5%.

• Downgrade to SELL from HOLD with a lower target price of RM5.26 (from previous RM6.28) based on DDM. Despite improved profit margins, gearing and dividend remain a concern.

Source: JF Apex Securities Research - 10 Feb 2017