Maxis' FY11 results were in line with our/streetexpectations. The key highlights were (i) the guidance of weaker EBITDA marginfor 2012 as it intends to be more aggressive in the market and (ii) managementhas no plans for stronger dividends beyond the quarterly payout quantum, whichis disappointing as the group recently geared up its balance sheet and isexpected to see peaking capex. Following the results, our FY12/13 forecast hasbeen adjusted by  -2.4% to 0.8%. Wemaintain our NEUTRAL call with itsshare price supported by the 7% dividend yield. Our FV is raised to RM5.50 (WACC: 9%, TG:1.5%) from RM5.10 afterrolling over to FY13. 

In line. At 96%and our/consensus core earnings (excluding the broadband tax incentive ofRM322m), Maxis FY11 results were in line. As expected, the higher opex from therollout of its Home service contributed to the 1.3%-pts erosion in EBITDAmargin q-o-q to 48.7% (FY11: 50.3%). Maxis' mobile revenue grew a pedestrian0.3% q-o-q, significantly below Celcom and Digi's +2-4% as we estimate itsvoice revenue fell 2% qo-q. Maxis continued to see prepaid revenue erosion andhas been slow to respond to competitor's aggression on voice tariffs. Non-voicerevenue remained the silver lining for the group, up an estimated 3% q-o-q(+10% y-o-y) thanks to robust growth in non-sms data revenue of 5% q-o-q (+18%y-o-y). We gather from management, that some 31% of its subs base are onsmartphones, above the average for the industry of 27-28%.  

To go more aggressive.Maxis said it has been been avoiding the competitive pressure on pricing butnow see this as inevitable to protect its share of the market. It plans to be moreaggressive this year with margins expected to suffer in the medium-term. Managementhas reaffirmed the guidance of mid single digit growth for 2012.

Home service in fullswing by mid-2012. Maxis said it is targeting subscribers 'in the tens ofthousands' for its home service but did reveal the subscribers it now has. Its expectsthe service to go full swing by mid-2012 with more bundled offers including theintroduction of mult-screen products. We continue to believe the delay in therollout of its home service (18 months after TM's Unifi) has cost the telcovaluable subs given that most has been locked in by TM's service whichcontinued to enjoy strong demand. Its addressable market for the home servicecomprised 900k households (under TM's HSBB) and about 100k households living inmulti-dwelling units where its own fiber currently runs.

Capex peaking but nosign of special dividend. Maxis foresees capex to come down to RM600-700min FY13 from under RM1bn in FY11 excluding investments in LTE. Disappointingly,there was no indication of potentially higher dividends even with the capexleveling off. The net DPS of 40sen/share for FY11 works out to a 119% payout.

Source: OSK188