Period

3Q15/9M15

Actual vs. Expectations

9M15 core PATAMI of RM1.38b (-7.6% YoY) came in below expectations, at 70.5%/71.8% of our/street’s full-year forecasts. Note that, Maxis’ 9-month PATAMI normally contributed c.76.8%-77.9% to its full-year earnings based on the past three financial years.

On our end, higher-than-expected direct expenses (as a result of IDD interconnect charges) and general & administrative costs were the key negative culprits.

Dividends

Declared a single-tier tax-exempt dividend of 5.0 sen of which the ex-date has been set at 26 November. For the full financial year, we expect a total of 21.3 sen dividend, implying a yield of 3.2%.

Key Results Highlights

YoY, revenue climbed by 2.5% to RM6.43b in 9M15 due to higher services revenue (+4.0% to RM6.38b) but partially offset by lower non-services revenue (i.e. device and hubbing business). The higher services revenue was primarily due to the continued uptrend in prepaid and stable postpaid revenue. Normalised EBITDA, meanwhile, weakened by 1.2% to RM3.17b with margin softening to 49.3% (vs. 51.2% in 9M14).

QoQ, turnover improved by 2.7%, thanks to the higher service revenue as a result of better prepaid segment performance (2.1%), on the back of: (i) higher data usage, and (ii) rising traction among the migrants. The group’s reported EBITDA weakened by 7.3% to RM1.0b with lower margin of 47.1% (vs. 52.2% in 2Q15) as a result of higher foreign exchange losses (RM113m vs. RM4m in the previous quarter). Its core PATAMI (after adding back the accelerated depreciation of RM20m vs. RM42m in 2Q15), dipped by 8.9% to RM440m, in line with lower EBITDA.

Maxis recorded a total of 230k subscribers net loss in 3Q15, narrowing its total subscriber base to 11.9m (under the revenue generating subscribers for more than 30-day definitions). The lower subscription base was mainly due to impact from high rotational churn of low ARPU subscribers and price-focused competition.

ARPU-wise, prepaid strengthened by RM3 to RM39 while postpaid inched RM1 to RM98. Having said that, its MaxisONE Plan continued to gain traction with subscriber base currently at 514k (vs. 434k in 2Q15) with stable ARPU of c.RM150 vs. mid-RM90 in the legacy plans.

Its blended smartphone penetration rate improved to 67% (vs. 65% in 2Q15) with 75% recorded in the postpaid segment and 65% in the prepaid. LTE network population coverage has widened to 55% (vs. 41% in 2Q15) while its 2G & 3G modernisation plan has achieved 83% vs. 81% in the preceding quarter.

Outlook

Maintained its FY15 guidance where Maxis expects to achieve a low single digit service revenue growth and an absolute EBITDA similar to FY14 level (c.RM4.23b). Its base capex, meanwhile, has increased to RM1.2b-RM1.3b range (from RM1.1b target in the preceding quarter) with unchanged dividend policy (target payout ratio of not less than 75% of normalised PAT as well as its FCF capability).

Change to Forecasts

We trimmed our FY15E/FY16E core net profit by 4.2%/3.5% after raising network cost and G&A expenses assumptions.

Rating

Maintain MARKET PERFORM

Valuation

Lowered TP to RM6.48 (from RM6.68 previously) based on an unchanged targeted FY16E EV/fwd EBITDA of 13.4x, representing a 0.5x standard deviation above the 4-year mean.

Risks to Our Call

Competition intensity and subscribers churn.

Source: Kenanga Research - 29 Oct 2015