Results

• Maxis reported a normalised PAT of RM361m in 3Q19, which declined 7.7% qoq and 30.3% yoy. Meanwhile, quarterly revenue stood at RM2.29b, rising 3.6% qoq and 0.9% yoy.
• For 9MFY19, the Group recorded a lower revenue of RM6.7b (- 0.4% yoy) and normalized PAT of RM1.16b (-23% yoy).
• Meeting expectations. Overall, 9MFY19 normalised PAT accounts for 71%/xx% of ours/market consensus full year estimate.

Comments

• Higher topline - Higher revenue was recorded in 3Q19 mainly due to higher device sales of RM322m (+20% qoq, +46% YoY) as mobile revenue remained flat at RM1.77b amid steady contribution from postpaid and prepaid.

• Lower bottomline – 3Q19’s decline in PAT was mainly due to lower wholesale revenue and higher costs as a result of termination of the network sharing agreement with U-Mobile earlier this year.

• Postpaid revenue stabilising. Postpaid subscribers grew 4.1% qoq and 12.4% yoy, spurred by migration from Prepaid. However, Postpaid ARPU was slightly lower at RM90 vs RM91 in 2Q19. The segment registered revenue of RM979m (+0.7%) in 3Q19 to arrest the QoQ decline since 4Q18.

• Higher revenue from Prepaid - Prepaid subscribers inched down 1.4% qoq and 4.7% yoy. Besides that, Prepaid ARPU was unchanged at RM41. Despite the ongoing churn, Prepaid revenue in 3Q19 increased 0.4% QoQ to RM794m.

• 9M19 in line. Year to date, group’s revenue has declined 0.4% yoy, due to lower mobile revenue from both Postpaid and Prepaid segments despite a 26% yoy growth in non-service revenue. Maxis also posted lower EBIT, no thanks to higher traffic, commission & other direct costs along with higher depreciation.

• Stable gearing. Net debt/EBITDA was slightly higher at 2.16x (vs 2.14x in 2Q19), whilst cash and bank balances increased 40% to RM844m QoQ due higher operating free cashflow and lower capex.

• Dividend declared. As expected, the Group has declared a third interim dividend of 5.0 sen/share, representing 75% of our full year FY19F dividend forecast of 20 sen. We expect similar dividend payment for 4Q19, translating into dividend yield of around 3.7%.

• Management maintained its guidance of: a) FY19F service revenue decline by low single digit, b) Normalised EBITDA drop by mid-single digit decline, and c) Capex budget of RM1b.

• Major risks for the stock include: a) Strong competition from other telcos, b) Higher-than-expected expenses from investment in productivity programme c) Change in regulatory risk and d) Declining postpaid revenue.

Earnings Outlook/Revision

• We maintain our FY19F and FY20F earnings forecast as the latest results are within expectation.

Valuation & Recommendation

• Maintain SELL with an unchanged target price of RM4.85, based on DCF valuation (WACC of 7.8% with a long term growth rate of 2.7%). Our revised target price implies 23.3x FY19F PE based on EPS of 20.8 sen.

• Our bearish stance on Maxis is mainly due to lack of catalyst to drive its earnings in the short run coupled with unattractive dividend yield of 3.7%.

Source: JF Apex Securities Research - 29 Oct 2019