FY19 normalised earnings of RM1.50b (-15%) and total dividends of 20.0 sen (4Q: 5.0 sen) were within expectations. Steady ARPUs and well-contained subscriber numbers paints the group’s sustainability against growing competition. Meanwhile, its convergence strategies also seem to be coming to fruition with a growing fibre business. Upgrade to MARKET PERFORM with a higher DCF-driven TP of RM5.10 (from RM4.90, WACC: 8.8%, TG: 1.5%).

FY19 within. FY19 normalised earnings of RM1.50b came in within both our and consensus expectations, making up 95% and 96% of respective estimates. The final dividend of 5.0 sen is also in line with expectations, amounting to a full-year payment of 20.0 sen. We anticipated a total payment of 19.0 sen a share.

YoY, FY19 service revenue fell to RM7.82b (-3%), stemming from lower Prepaid (-7%) and Postpaid (-3%) contributions. Though Prepaid ARPU was stable (RM42/sub), subscribers fell from the ongoing SIM consolidation and migration to attractive entry level Postpaid-plans. However, this led to a softening of ARPU (4QFY19: RM90/sub). Normalised EBITDA came in at RM3.77b (-7%), in the absence wholesale agreements this year unlike last year. FY19 normalised earnings stood at RM1.50b (-15%), as higher depreciation and interest charges were met with less taxes.

QoQ, 4QFY19 service revenue grew slightly (+3%) thanks to better enterprise performance. Mobile revenue was flattish as weaker Prepaid was offset by stronger Postpaid. Having incurred higher direct opex during the quarter (possibly from greater device sales), 4QFY19 normalised profit registered at RM344.0m (-5%).

Confident to do better. Having met their FY19 guidance, management presented their FY20 targets which lean to be fundamentally better, aiming to register flat-to-low single-digit growth for: (i) service revenue, and (ii) normalised EBITDA. Recent quarters’ sustainable subscriber numbers could indicate that customer leakages are well-contained and product strategies have been effective. Growth in the home-fibre segment (aided by bundled packages with partners) serves to also build the group’s recurring revenue base, in line with the group’s vision to be a converged solutions provider. That being said, possible participation in developing the nation’s 5G infrastructure could alter the group’s strategies and capex commitments. Further clarity could arise in the coming weeks from MCMC, paving the way to the intended 5G commercialisation timeline of 3QCY20.

Post-results, we introduce our FY21E numbers.

Upgrade to MARKET PERFORM with a higher DCF-driven TP of RM5.10 (from RM4.90). While we maintain our DCF assumptions (WACC: 8.8%, TG: 1.5%), our upgrade is mainly premised on a better long-term projected outlook for the stock. Current price levels and target price could also be fair, close within the stock’s 3-year average of its EV/fwd EBITDA. We believe investors could be hesitant on the stock and its peers currently, awaiting further developments in the 5G scene. For now, we opine MAXIS could be a stable option for its long-term trajectory as well as decent dividends (albeit not the industry’s highest).

Risks to our call include: (i) higher/lower-than-expected service revenue growth, (ii) lower/higher-than-expected OPEX, and (iii) less/more aggressive competition.

Source: Kenanga Research - 21 Feb 2020