Result

• Maxis reported a normalised PAT of RM344m in 4Q19, which declined 4.7% qoq but rose 32.8% yoy. Meanwhile, quarterly revenue stood at RM2.6b, rising 13% qoq and 6% yoy.
• For FY19, the Group recorded a higher revenue of RM9.3b (+1.3% yoy) and lower normalized PAT of RM1.5b (-15% yoy).
• Still within expectation. Overall, FY19 normalised PAT accounts for 92% of ours full year estimate.

Comments

• Devices drive revenue - Higher revenue was recorded in 4Q19 mainly due to higher device sales of RM576m (+20% qoq, +46% YoY) as mobile revenue remains flat at RM1.77b.

• Lower bottomline – 4Q19’s decline in PAT was mainly due to higher traffic and direct costs of RM1.15b (vs RM835m in 3Q19).

• Postpaid revenue growing. Postpaid subscribers grew 4.3% qoq and 14.7% yoy, spurred by migration from Prepaid. Postpaid ARPU was flat at RM90. The segment registered revenue of RM989m (+1% QoQ and -6% YoY)

• Prepaid revenue continues to fall - Prepaid subscribers inched down 1.6% qoq and 5.8% yoy). Prepaid ARPU was slightly higher at RM42 (vs RM41 in 3Q19. Amid the ongoing churn, Prepaid’s revenue decreased 1.4% QoQ and 7.3% to R783m.

• Results in line. Full year revenue increased 1.3% YoY to RM9.3b mainly due higher device sales that cushioned lower mobile revenue from both Postpaid and Prepaid segments. However, Maxis posted lower normalized PAT of RM1.5b (-15% YoY), no thanks to higher traffic, commission & other direct costs along with higher depreciation.

• Higher gearing. Net debt/EBITDA was higher at 2.24x (vs 2.16x in 3Q19), whilst cash and bank balances decreased 31% QoQ to RM582m due higher capex investment.

• Dividend declared. As expected, the Group has declared a third interim dividend of 5.0 sen/share, meeting our full year FY19F dividend forecast of 20 sen and translating into dividend yield of 3.7%.

• Management introduced its guidance for 2020: a) Service revenue to be flat or grow by low single digit, b) Normalised EBITDA to be flat or grow by single digit, and c) Base capex of RM1b.

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

Earnings Outlook/Revision

• We maintain our earnings forecasts 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 target price implies 23.3x FY20F PE based on EPS of 21.4 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 - 21 Feb 2020