Period  3Q14/9M14

Actual vs. Expectations  Maxis’ 9M14 core PATMI of RM1.49b (-9% YoY) came in within expectations; at 74.8% of our full-year forecast and 76.0% of the street consensus.

Dividends  Maxis has declared a single-tier tax-exempt DPS of 8.0 sen (ex-date: 28 Nov.), bringing the 9M14 DPS to 24.0 sen. For the full financial year, we expect the group to declare a 40.0 sen DPS.

Key Results Highlights YoY, 9M14 revenue declined by 9% to RM6.3b as a result of lower services revenue (-4% to RM6.1b) and non-services revenue (i.e. device and hubbing business, -71% to RM131m). The lower services revenue was primarily led by the lower voice (-4.5% to RM3.3b) and SMS (-31.5% to RM612m) earnings contributions. Mobile internet revenue, however, improved by 14.5% to RM1.7b partially mitigating the lower voice & SMS usage. Normalised EBITDA, meanwhile, declined by 7% to RM3.2b while margin improved to 51.2% (vs. 50.2% a year ago) as a result of lower traffic, device-related expenses, and staff costs.

 QoQ, 3Q14 turnover slid 1% to RM2.07b, mainly due to the lower data segment revenue (-1% to RM864m) while its voice segment remained flattish at RM2.05b (due mainly to the re-pricing of its postpaid pay-per-use (PPU) charges which dampened the segment revenue lowered by RM16m). On a normalised basis, EBITDA improved by 1% to RM1.1b with a margin of 51.8% (vs. 51.1% in 2Q14) as a result of the reversal of staff cost.

 Maxis recorded a total of 14k subscriber's net adds (after suffering 5-consecutive quarters of losses in its net adds), in 3Q14, bringing its total subscriber base to 12.4m. The higher subscriber adds was mainly led by the prepaid segment (39k, as a result of higher traction continued to suffer -25k loss in subscribers due to the repricing impact. APRU-wise, its prepaid added RM1 to RM35 while postpaid dipped RM3 to RM94 due to PPU re-pricing impact.

 Its blended smartphone penetration rate improved to 54% (+5ppt QoQ; mainly boosted by attractively priced low-to-mid tier devices) with 67% (+3ppt) recorded in the postpaid segment and 50% in the prepaid (+6ppt).

Outlook  Maxis had shown some signs of recovery in 3Q14, but we believe more concrete results may only be seen by another 3-6 months after the group successfully reposition and re-price its products as well as reassess its sales and distribution network.

Change to Forecasts Post-results, we have lowered our FY14 core NP to RM2.0b (-0.6%) after fine-tuning but keeping our FY15E number unchanged at RM2.1b.

Rating Maintain MARKET PERFORM

Valuation  Raise TP to RM7.20 (from RM6.87 previously) based on a higher targeted FY15E EV/fwd EBITDA of 13.7x (vs.

12.9x previously), representing a 1.0x standard deviation above the 4-year mean, in view of the early stage of earnings recovery as well as current market uncertainty, which will likely benefit the defensive sectors (i.e. Telco).

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

Source: Kenanga