Maxis reported its highest PATAMI in four years, which was still within expectations. Moving forward, Maxis is expecting its FY18 service revenue and EBITDA to decline by low and mid-single digits with FCF maintained at similar level to FY17. We have fine-tuned our FY18E PATAMI by -1.5% post the results review. Maintain MARKET PERFORM call with unchanged DCF-driven TP at RM6.10 (WACC: 6.6%, TG: 1.5%).

Solid result. FY17 core PATAMI of RM2.1b (+6% YoY, highest since FY13) came in within expectations at 100%/102% of our and the street’s full-year estimates. The higher core PATAMI growth (on a YoY basis) was mainly due to: (i) higher service revenue (+1% 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), and marketing cost. Note that, the FY17 core PATAMI was arrived at after removing RM59m unrealized forex gain and RM47m reduction of service fee. As expected, it declared an interim single-tier tax-exempt dividend of 5.0 sen (ex-date: 26th Feb), bringing the YTD total DPS to 20.0 sen (FY16: 20.0 sen).

YoY, FY17 service revenue climbed to RM8.5b (+1% YoY) on the back of solid postpaid (+4.3%) mainly supported by higher MaxisONE subscription base of 2.0m (+370k net adds) with lower ARPU of RM117 (vs.RM127). Its prepaid service revenue, however, was reduced by 3.8% due to the continued SIM consolidation, prepaid to postpaid migration and intense price competition. Normalised EBITDA grew 2.1% to RM4.6b (as a result of higher revenue base, efficient marketing spend and cost optimisation initiatives), with margin inching higher to 52.9% vs. 52.3% a year ago. Blended data consumption almost doubled to 7.4GB (vs. 4.1GB in 4Q16), supported by higher smartphone penetration rate of 81% (vs. 76% a year ago). QoQ, prepaid revenue dipped 5% (to RM904m) in 4Q17 as a result of lower customer base (-157k to 7.0m, impacted by SIM consolidation and intense price-focused competition) and ARPU (-RM1 to RM41) despite stronger acceptance of its Hotlink FAST pack (which was successful in acquiring higher mobile Internet ARPU users). Postpaid revenue climbed marginally by 2% to RM1.08b, thanks to higher subscriber base (+48k to 2.85m) with steady ARPU of RM103. MaxisONE subscribers, meanwhile, accounted for 71% (or 2.0m users vs. 1.95m in 3Q17) of the group’s postpaid user base with ARPU maintained at RM117.

Focus on providing unmatched digital experience. Market competition is expected to remain intense in FY18 with data quality and pricing continued to be the key focus to attract subscribers. The group is set to focus on providing unmatched digital customer experience by leveraging on its 4G LTE network coverage and quality. Continued strengthening of its MaxisOne plans with enhanced device propositions 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. Besides, the group also aims to continue focusing on operational efficiency in FY18.

Introduced FY18 guidance. Maxis is expecting its service revenue to decline by a low single-digit (as a result of the continued SIM consolidation; new access pricing structure; and lower U Mobile contribution (following the termination of network sharing and alliance agreement, which is set to be completed by end-FY18)), mid-single-digit drop in EBITDA with base capex continuing to stay at c.RM1b. Besides, its free cash flow (FCF, excluding upfront spectrum assignment fees) is also set to maintain at a similar level to FY17 (at c.RM1.5b); thus, suggesting that the annual DPS is likely to remain unchanged.

Reiterated MARKET PERFORM call with unchanged DCF-driven TP at RM6.10. We have reduced our FY18E PATAMI by 1.5% after some finetuning. Meanwhile, we also take this opportunity to introduce our FY19E numbers, where we expect the group’s net profit to stay flat despite a 2.4% growth in turnover (as a result of the low base effect).

Source: Kenanga Research - 9 Feb 2018