Result

• 1Q17 normalised PAT met expectation after gaining 5.4% YoY to RM544m. Quarterly revenue inched up 0.8% YoY to RM2.16bn.

• Lower QoQ – Normalised PAT declined 6.3% QoQ on one-time human resource cost while revenue dropped 2.6% QoQ after lower prepaid subscribers.

• Within forecast – Maxis’ 1Q17 performance was within expectation as normalized net profit made up 26% of our full year forecast. Revenue also met our forecast after accounting for 24% of our FY17 estimate.

• Lower profit margin – 1Q17 normalised PAT margin declined 1 percentage points to 23.6% from the previous quarter while normalized EBIDTA margin shed 1.6 percentage points to 51.8%. Margins declined following one-time performance incentive payment.

• Steady ARPU despite losing subscribers – Overall, blended ARPU was unchanged at RM57 with a bigger churn of 178k (vs 52k in 2Q16) as total subscribers declined to 10.67m from 10.85m in 4Q16.

• Higher prepaid churn – Prepaid revenue was 1.3% QoQ and 0.3% YoY lower at RM1bn as ARPU was unchanged at RM42 but Maxis lost 192k prepaid subscribers to 7.75m during the quarter (vs 61k churn in 4Q16).

• Postpaid continued to gain subs – Postpaid revenue was 2.1% QoQ and 0.8% YoY lower at RM989m vs RM1bn in 4Q16 as ARPU dropped slightly to RM102 from RM104 in 4Q16 due to seasonality and lower roaming revenue. During the quarter Maxis added 32k postpaid subs (vs +34k in 4Q16) to 2.74m.

Earnings Outlook/Revision

• Forecast maintained – Our FY17 and FY18 estimates are maintained as we expect growth will continue to be driven by its postpaid segment and premium Maxis One Plan.

• Higher gearing – Net debt increased to RM8.7bn in 1Q17 from RM8.57bn 4Q16 as cash dwindled to RM559m from RM682m in 4Q16. As result, net debt/EBITDA rose to 1.96x in 1Q17 from 1.88x in 4Q16.

Valuation & Recommendation

• Maxis announced its first interim dividend of 5 sen per share. Due to its high gearing, we expect lower dividend of 16 sen for FY17 which translates into an unattractive yield of 2.5%.

• Maintain SELL with an unchanged target price of RM5.26 based on DDM. Despite the highest profit margins in the industry, gearing and dividend remain a concern.

Source: JF Apex Securities Research - 28 Apr 2017