Period

1Q15

Actual vs. Expectations

1Q15 core net profit of RM455m (-12% YoY) came in within the street and our expectations, at 22.6% and 23.3% of full-year forecasts, respectively.

Overall, the 1Q15 performance was mainly driven by higher service revenue but offset by lower EBITDA margin and higher accelerated depreciation charges associated with the network modernisation programme.

Dividends

Declared a single-tier tax-exempt dividend of 5.0 sen, of which the ex-date has been set at 27 May. For the full financial year, we expect a total of 28.0 sen dividend (vs. 30.0 sen previously after management clarified its FCF definitions (CFO + CFI – payments of finance costs)).

Key Results Highlights

YoY, 1Q15 revenue inched up by 1% to RM2.15b due to higher services revenue (+4% to RM2.13b) but partially offset by lower non-services revenue (i.e. device and hubbing business). The higher services revenue was primarily due to continued uptrend in prepaid and stable postpaid revenue. Normalised EBITDA, meanwhile, declined by 8% to RM989m while the margin dipped to 48.7% (vs.50.6% a year ago) as a result of higher cost of materials and sales & marketing spends.

QoQ, turnover improved 1% while the reported EBITDA strengthened by 5% to RM1.05b on the back of higher revenue and effective cost management. Its core net profit, meanwhile, advanced by 8% to RM455m, in line with higher EBITDA and lower accelerated depreciation (RM43m vs. RM84m in 4Q14).

Maxis recorded a total of 350k subscribers net adds in 1Q15, bringing its total subscriber base to 12.2m (under the revenue generating subscribers for more than 30 days definitions). The higher subscriber adds was mainly led by the prepaid segment (336k, driven by higher non- Malaysian subscribers as a result of the competitive IDD rate) while the postpaid segment remains steady. ARPUwise, prepaid weakened by RM1 to RM38 while postpaid declined RM2 to RM98. Having said that, its MaxisONE Plan continued to gain traction with subscriber base currently at more than 350k and generating ARPU of c.RM150 vs. mid-RM90 in the legacy plans.

Its blended smartphone penetration rate stayed at 57% with 70% recorded in the postpaid segment and 55% in the prepaid. LTE network population coverage has widened to 39% (from 21% a year ago) while its 2G & 3G modernisation plan has achieved 78% vs. 60% in 1Q14.

Outlook

Maintained its FY15 guidance where Maxis expect to achieve a low single digit service revenue growth and an absolute EBITDA similar to FY14 level. Its capex, meanwhile, is expected to stay at RM1.1b with dividend policy unchanged (target payout ratio of not less than 75% of normalised PAT as well as its FCF capability).

Change to Forecasts

Raised our FY15E core NP by 0.3% (to RM1.96b) and 0.4% in FY16E (to RM2.14b) after fine-tuning.

Rating

Maintain MARKET PERFORM

Valuation

Maintained TP at RM7.16 based on an unchanged targeted FY15E EV/fwd EBITDA of 14.0x, representing a 1.0x std deviation above the 4-year mean.

Risks to Our Call

Higher-than-expected margin pressure and subscribers churn.

Source: Kenanga Research - 28 Apr 2015