Maxis' results fell short of street estimates although  in  line  with  ours.  The  key highlights  were:  (i)  extended  EBITDA  margin  contraction  as  the  group  upheld device  subsidies,  and  (ii)  voice  revenue  bounced  back  after  several  quarters  of contraction as the telco's re-pricing  efforts  paid  off. Management's guidance for 2%  revenue  growth  and  EBITDA  margin  of  48%-49%  is  consistent  with  our  2012 forecast.  We  are  retaining  our  FY12/FY13  numbers  and RM6.50  FV,  based  on  8%WACC. Maintain NEUTRAL, supported by a 6% dividend yield.

A weaker tune. Maxis reported a core profit of RM462m for 3QFY12 (-16% q-o-q, -16% y-o-y)  and  RM1.57bn  YTD  (-14%  y-o-y),  excluding  the  broadband  tax  incentive  and write-down  of  network  assets  totalling  RM20m  for  3Q12  and  RM88m  for  9MFY12.  The cumulative  earnings  were  4%  short  of  our  forecasts  when  annualized,  and  7%  below consensus  estimates,  mainly  due  to  weaker  EBITDA,  a  higher  effective  tax  rate  and depreciation during the quarter. The group has declared an expected third interim DPS of 8 sen, bringing its YTD payout to 24 sen/share, payable on 28 Dec 2012.

1-month  contribution  from  roaming  pact  in  3Q12.  Excluding U Mobile's roaming contribution of RM4m in 3Q12, Maxis' mobile revenue would have ticked up q-o-q after three  successive  quarters  of  decline.  Management  has  reaffirmed  its  guidance  for  a RM1bn target revenue from U Mobile in five years.

Focus on acquisition/retention will continue to hurt margins. Maxis' EBITDA dipped 5%  q-o-q  in  the  steepest  sequential  decline  since  1QFY11,  as  it  maintained  strong subscriber  acquisition  and  retention  momentum  to  claw  back  lost  revenue  share.  More specifically,  the  telco  dangled  generous  device  subsidies  while  starting  to  reap  the rewards  from  its  earlier  re-pricing  exercise.  Handset  revenue  almost  doubled  q-o-q, reflecting  the  brisk  sales  of  the  Samsung  SIII.  We  expect  margins  to  remain  under pressure over the next two quarters on seasonality, the introduction of iPhone5, as well as strong reception to the Samsung Galaxy Note II, for which stocks are fast depleting.    

To unveil IPTV fiber plans. Maxis  will soft launch its IPTV service on 29 Nov  with full commercial  rollout  in  1Q2013.  It  expects  to  close  2012  with  some  25k  home  fiber customers, up from 19k in 3Q12, which doubled q-o-q. This is only 5% of what TM (its access provider) hopes to achieve by year-end for the Unifi service, for which over 1.2m premises  have  since  been  passed.  We  expect  Maxis  to  offer  good  cross-bundling incentives  for  existing  Maxis  customers  and  to capture  a  bigger slice  of the  home  fiber market, where the overall take-up stands at some 40%.

OTHER HIGHLIGHTS 

Ownership of IPTV subscribers. While Maxis did not reveal the mechanics of its tie-up with its sister company, Astro  to  offer  IPTV,  management  highlighted  that  the  collaboration  is  not  a  'wholesale-  type  model'  and subscribers are owned by the group.

Capex  to  settle  below  RM1bn  for  2012/2013.  Maxis  spent  RM707m  in  capex  YTD  with  full  year  spending expected  to  come  in  10-15%  below  the  previous  guidance  of  RM1bn  due  to  procurement  savings  and  some planned  deferment  of  capex  into  FY13.  While  it  did  not  provide  an  outright  guidance  for  FY13,  Maxis  believes spending will come in under RM1bn which includes the investment on LTE and the upgrade of its IT infrastructure.

Source: OSK