EBITDA in line, net profit below expectation. Maxis’s 4Q12 net profit of MYR378m (-58% YoY, -14% QoQ) lifts FY12 net profit to MYR1,856m (-27% YoY), 94% of our forecast and 87% of consensus. The miss was attributable to higher-than-expected depreciation and tax charges. We view Maxis’ dividend policy as aggressive, and believe the sector remains vulnerable to further profit taking. Maintain HOLD with a marginally lower DCF-based target price of MYR6.25 (-1%) after shaving FY13-14 earnings estimates by 2% p.a..

Mixed operational trends. Maxis added 67k prepaid subscribers in 4Q12 while preserving ARPU. The sequential trend in postpaid was also positive, with Maxis adding 34k subscribers in 4Q12 on a 2% ARPU increase. Momentum in the fibre broadband segment slowed in 4Q12 (6.3k subscribers added vs 10k in 3Q12), but should pick up with the launch of Astro services in end-1Q13. 4Q12 EBITDA margin declined 1.3ppt QoQ due to higher direct expenses, bringing full year EBITDA margin to 47.1%, -2.7ppt YoY (normalised 2012 EBITDA margin of 48.6%). For FY13, management guided for 1) mid-single digit revenue growth and 2) EBITDA margin in the range of 48 – 48.5%.

40sen DPS to continue, gearing to accelerate. Management has committed to maintain the 40sen DPS for the next two years. Capex meanwhile is to remain high at c.MYR1b during this period as the company continues its network upgrades. This means the shortfall in enterprise FCF for dividends would become more pronounced. By our estimates, gearing would approach management’s previously stated net debt/EBITDA ceiling of 2x in FY15 if management continues the 40sen annual DPS policy.

Maintain Hold, lower target price of MYR6.25. We shave our target price from MYR6.30 to MYR6.25, having lowered our FY13-14 earnings by 2% each year respectively. We value Maxis on a DCF, assuming 7.1% WACC and 2% long term growth. Our target price implies 22.9x PER, 12.4x EV/EBITDA and 6.4% net dividend yield in FY13.

Source: Maybank Research - 27 Feb 2013