9M17 results showed strong improvement operationally. Despite decent numbers, Maxis is maintaining its flattish yearon-year growth target for FY17. We have raised our FY17E/FY18E earnings by c.2-3% post the result review. Maintained MARKET PERFORM call but with higher DCFdriven TP of RM6.05 (WACC: 6.7%, TG: 1.5%).

Solid performance. 9M17 core PATAMI of RM1.56b (+9.6% YoY) came in within our, but above the street, expectations at 77%/80% of respective fullyear estimates. The higher core PATAMI growth (on a YoY basis) was mainly due to: (i) higher service revenue (+2% YoY) on the back of higher postpaid performance, and (ii) better EBITDA and margin as a result of lower traffic (due to lower IDD cost), operation and maintenance costs (due to lower IT related costs). Note that, the 9M17 core PATAMI was arrived at after removing RM97m unrealized forex gain and service fee write-back as well as adding a RM24m tax effect arising from the above adjustments. It declared a third interim single-tier tax-exempt dividend of 5.0 sen (ex-date: 28th Nov.), bringing the YTD total DPS to 15.0 sen (9M16: 15.0 sen).

YoY, 9M17 service revenue climbed to RM6.4b (+2% YoY) on the back of solid postpaid (+3.5%) mainly supported by higher MaxisONE subscription base of 1.95m (+454k net adds) with ARPU of RM119. Its prepaid service revenue, however, reduced by 1.2% due to the continued SIM consolidation and intense price competition. Normalised EBITDA grew 3.4% to RM3.4b (as a result of higher revenue base, efficient marketing spend and cost optimisation initiatives), with margin inching higher to 52.4% vs. 51.8% a year ago. QoQ, prepaid revenue dipped 3% (to RM955m) in 3Q17 as a result of lower customer base (-328k to 7.1m, impacted by SIM consolidation and intense price-focused competition) but partially cushioned by the stable ARPU (of RM42) as well as stronger acceptance of its Hotlink FAST pack (which was successful in acquiring higher mobile Internet ARPU users). Postpaid revenue climbed marginally by 6% to RM1.05b, thanks to higher subscriber base (+20k to 2.8m) with steady ARPU of RM102. MaxisONE subscribers, meanwhile, accounted for 69% (or 1.95m users vs. 1.89m in 2Q17) of the group’s postpaid user base with ARPU softening by RM3 to RM117.

Focus on solutions and digital base products. Market competition is expected to remain intense with data quality and pricing continued to be the key focus to attract subscribers. The group is set to focus on introducing solutions and digital base products while maintaining network advantage through scalable capacity design and indoor experience. Continued strengthening of its MaxisOne and MaxisOne Prime plans will be the key focus under the postpaid segment while differentiated propositions that engage high mobile Internet users and enable a high-speed digital lifestyle remained its key strategy under the prepaid division.

Maintained FY17 earnings guidance. Despite posting a decent 9M17 report card, Maxis is maintaining its FY17 KPIs where the group is expecting the service revenue, absolute normalised EBITDA and base capex to come in at similar levels to FY16. Note that Maxis recorded RM8.5b, RM4.5b, and RM1.2b for the above financial parameters in FY16, respectively.

700MHz spectrum update. Maxis is reluctant to share the details of its submission plan but highlighted that the ideal bandwidth under the 700MHz spectrum is 2x10Mhz block (which could cost a lump sum payment of RM431m (excl. the annual fee) under the proposed 700MHz framework).

Raised TP to RM6.05 but maintained MARKET PERFORM rating. We have raised our FY17/FY18E PATAMI by 2.4%/1.7% after updating the 3Q17 numbers and reducing the traffic cost (from 24.5% to 23%) and operation & maintenance cost (from 4% to 3.3%) assumptions post the result review. Maintained MARKET PERFORM call but raised our DCFdriven TP to RM6.05 (from RM5.90 previously).

Source: Kenanga Research - 26 Oct 2017