Period

1Q16

Actual vs. Expectations

1Q16 core PATAMI of RM482m (+0.4YoY) came in within expectations and accounted for 25% of both our and the street full-year estimates. The 1Q16 core PATAMI was arrived at after adding back the RM7m accelerated depreciation and removing the unrealised forex gains of RM43m.

Dividends

Declared a single-tier tax-exempt dividend of 5.0 sen, (ex-date: 27th May). For the full financial year, we expect the group to announce 20.0 sen (vs. 22.3 sen of the consensus), implying a yield of 3.4% and 77% payout ratio (or c.85% of FCF).

Key Results Highlights

YoY, 1Q16 revenue dipped by 0.4% to RM2.1b due to flattish services revenue and lower nonservices revenue. Its mobile revenue retreated by 0.7%, no thanks to the lower prepaid revenue (- 3.5%) but partially offset by higher postpaid turnover (+2.3%) as a result of higher MaxisONE plan subscriptions (962k vs. 350k a year ago with stable ARPU of c.RM150/month). Normalised EBITDA was enhanced by 6.7% to RM1.15b (on the back of a better subscriber mix), with margin improving to 55.8% (vs. 48.7% in 1Q15).

QoQ, prepaid revenue stood at RM1.0b (-2.5%) driven by lower subscription base, which was affected by intense price competition and high rotational churn. Postpaid revenue, meanwhile, also declined by 1.7% to RM994m, no thanks to the lower seasonal roaming revenue. Normalised EBITDA was higher by 3.1% with margin advancing to 54.0% (vs. 51.5% in 4Q15).

Maxis recorded a total of 393k subscribers' net loss in 1Q16, narrowing its total subscriber base to 10.9m. The lower subscription base was mainly due to impact from high rotational churn of low ARPU subscribers and price-focused competition. ARPU-wise, prepaid/postpaid remain flattish at RM39/RM102, respectively. MaxisONE Plan adoption has a larger subscriber base of 962k (vs. 623k in 4Q15) and stable ARPU of RM150/month (vs. mid-RM90 in the legacy plans).

LTE network population coverage has widened to 74% (vs. 71% in 4Q15) while its 2G & 3G modernisation plan has achieved 91% vs. 78% at end-1Q15.

Outlook

Maintained FY16 guidance, where Maxis expecting its service revenue, absolute normalised EBITDA and base capex to come in at similar levels to FY15. Note that, Maxis has recorded a 3.8% YoY, RM4.4b, and RM1.3b in the above financial parameters in FY15, respectively.

Change to Forecasts

Trimmed FY16/FY17E NP by 1.9%/2.5% after lowering our turnover forecast by 1.2%/2.2%, as we believe the group’s performance could be negatively impacted by the recent postpaid accusation.

Rating

Maintain MARKET PERFORM

Valuation

Lowered TP to RM6.44 (from RM6.48 previously) based on unchanged FY16E EV/fwd. EBITDA of 12.9x, representing a -0.5x std. dev. below the 4- year mean.

Risks to Our Call

Downside: Higher-than-expected margin pressure and subscribers churn.

Source: Kenanga Research - 22 Apr 2016