Period  1Q14

Actual vs. Expectations Maxis’ 1Q14 core net profit of RM517m (-1% YoY) came in within the street and our expectations, at 24.7% of full-year forecasts.

Dividends  Maxis has declared a single-tier tax-exempt dividend of 8.0 sen, of which the ex-date has been set at 28 May.

For the full financial year, we expect the group to declare a total of 40.0 sen dividend, as in FY14.

Key Results Highlights YoY, 1Q14 revenue declined by 9% to RM2.1b due to lower services revenue (-5% to RM2.0b) and nonservices revenue (i.e. device and hubbing business). The lower services revenue was primarily due to lower voice and SMS usage. Mobile internet revenue, however, improved by 12% to RM524m despite the adverse revenue impact from the elimination of pay per use charges. Normalised EBITDA, meanwhile, declined by 4% to RM1.1b while the margin improved to 50.6% (vs. 48.2% a year ago) as a result of lower traffic, device-related expenses, staff costs and marketing spend.

 QoQ, turnover slid 5% while the reported EBITDA improved by 11% to RM1.1b as a result of the absence of one-off RM110m Career Transition Scheme cost and provision for contract obligations incurred in 4Q13. Its normalised EBITDA, meanwhile, was relatively flat at RM1.1b (-1%) with a margin of 50.6% (vs. 48.6% in the prior quarter). Consequently, its core net profit improved by 11% to RM517m, thanks to the absence of such one-off items.

 Maxis recorded a total of 291k negative subscriber's net adds in 1Q14, reducing its total subscriber base to 12.6m. The higher subscribers churn was mainly led by its prepaid segment (-290k) as a result of SIM expirations from the Hotlink Youth Club & legacy plans, which are generally non-active and non-revenue generating SIMs. Postpaid base excluding WBB, however, grew by 25k QoQ. Prepaid ARPU, meanwhile, was maintained at RM33 in 1Q14 while postpaid ARPU shed RM4 to RM96.

 Non-voice segment continued to be a primary revenue contributor which accounted for 43.9% of the group’s 1Q14 service revenue of RM2.0b.

Outlook  Guided service revenue and absolute normalised EBITDA similar to FY13 level.

Change to Forecasts Raised FY14E core NP marginally to RM2.1b (+0.5%) after fine-tuning. FY15E core NP, however, is reduced to RM2.12b (-1.1%) after raising interest cost assumption.

Rating Maintain MARKET PERFORM

Valuation  Our TP is maintained at RM7.10 based on a targeted FY14 EV/forward EBITDA of 12.9x, representing a 1.0x standard deviation above the mean of 3-year EV/forward EBITDA band.

Risks to Our Call  Higher-than-expected margin pressure and subscribers churn.

Source: Kenanga