FY16 results came in above our but within the street’s estimate. A surprise interim tax exempt dividend of 5.0 sen was announced. Moving forward, Maxis is expecting a flattish year-on-year growth performance in FY17 despite challenges ahead. We have fine-tuned our FY17E earnings by +4% and introduce our FY18 numbers. Maintain MARKET PERFORM call but with higher TP of RM5.90 (vs. RM5.80 previously), based on targeted FY17E EV/forward EBITDA of 12.0x (representing a -1.0x standard deviation below its 2-year mean).

A pleasant surprise. FY16 core PATAMI of RM1.96b (+0.4 YoY) came in above our (at 106%) but within the street’s full-year estimate (at 103%) due to lower-than-expected direct and marketing expenses. The FY16 core PATAMI was arrived at after excluding RM94m home-related contract obligations reversal and asset impairments, (ii) RM20m unrealized forex gains, and (iii) RM49m accelerated depreciation (on its IT and network modernization programmes). It declared a surprise fourth interim single-tier tax-exempt dividend of 5.0 sen (ex-date: 24th Feb.), bringing its full-year total DPS to 20.0 sen (vs. our 15.0 sen estimate).

YoY, FY16 revenue was flat at RM8.6b as the softer services revenue (- 0.8%) was offset by higher non-services revenue (+94%). Its mobile revenue retreated by 1.8%, no thanks to the lower prepaid revenue (-3.7%) on the back of intense price competition. Postpaid turnover, meanwhile, inched up by 0.2% supported by higher MaxisONE plan’s subscriber base (1.66m with ARPU of RM127/month vs. 813k and RM158 a year ago). Normalised EBITDA growth was higher by 1.3% to RM4.5b (as a result of efficient marketing spend and cost optimization programme), with margin improved to 52.1% (vs. 51.4% in FY15).

QoQ, prepaid revenue stood at RM1.0b (+0.2%) with ARPU increased RM1 to RM42, thanks to the stronger acceptance of its Hotlink FAST pack (which was successful in acquiring higher mobile internet ARPU users). Postpaid revenue, meanwhile, improved by 4.6% to RM1.0b with higher ARPU of RM104 (vs. RM100), mainly driven by its MaxisONE plan and Zerolution (where subscribers have increased to 1.66m from 1.5m in 3Q16). Maxis recorded a total of 27k subscribers’ net loss in 4Q16, narrowing its total subscriber base to 10.8m. LTE network population coverage widened to 88% (vs. 81% in 3Q16).

Introduced FY17 guidance. Maxis is expecting its service revenue, absolute normalised EBITDA and base capex to remain at similar levels to FY16. Note that, Maxis recorded RM8.5b, RM4.5b, and RM1.2b for the above financial parameters in FY16, respectively.

FY17 strategies. Maxis has outlined its priority tasks in FY17, where the group aim to: (i) strengthen core customer propositions through value propositions, (ii) create unmatched customer experience across technologies, services and channels, as well as (iii) maintain network advantage through leveraging a scalable capacity design and to focus on indoor experiences. We concur with management’s strategies given that the prices offered by Cellcos are already at very competitive levels. Thus, key differentiating factors are likely to come from value-added services as well as consumer experience (as a reflection of the network coverage/quality).

Raised FY17E net profit by 3.8% to RM1.98m after lowering direct and marketing costs assumptions to reflect the latest run-rate. Having said that, its FY17 financial performance is expected to remain lacklustre in view of the uninspiring service revenue growth (due to heightened competition and lack of effective data monetisation plan). Meanwhile, we also take this opportunity to introduce our FY18E figures, where we expect Maxis’ service revenue to record an organic annual growth of 1%.

Source: Kenanga Research - 10 Feb 2017