INVESTMENT HIGHLIGHTS

• 1HFY17 normalised came in within expectation supported by improvement in service revenue and profit margin

• Higher mobile internet usage for the prepaid segment boosted prepaid ARPU despite lower subscriber base

• Reduction in postpaid ARPU partly suppressed the growth in postpaid revenue

• Maintain NEUTRAL with an unchanged target price of RM5.80 per share

Steady earnings growth momentum. Maxis 2Q17 normalised earnings amounted to RM484m, an increase of +12.8%yoy. Coupled with normalised 1Q17 of RM514m, Maxis’ 1HFY17 normalised earnings grew by +9.5%yoy to RM998m. Note that the normalised earnings has been adjusted for unrealised forex (RM34m) and reduction of service fee (RM47m). The increase in 1HFY17 cumulative earnings was mainly driven by steady postpaid and prepaid performance as well as cost efficiencies. All in, the group’s 1HFY17 financial performance came in within our and consensus expectations, accounting for 51% and 52% of full year FY17 earnings estimates respectively.

Higher mobile internet usage for the prepaid segment. The prepaid service revenue grew by +1.3%yoy in 1HFY17 to RM1,989m. This was mainly attributable to higher prepaid ARPU of RM42/mth (vs 2QFY16: RM38/mth). Currently, the mobile internet revenue made up approximately 50% of prepaid revenue as compared to 39% a year ago. This was supported by +183.8%yoy increased in Hotlink FAST customer base to 1.9m subscribers. However, there was a drop in overall prepaid subscriber base to 7.5m subscribers from 8.1m subscribers as at 2QFY16.

Dilution in postpaid ARPU. The 1HFY17 postpaid service revenue remained resilient at RM1,987m (+0.6%yoy). This was premised on higher postpaid customer base of 2.8m subscribers (2QFY16: 2.7m subscribers). However, the postpaid ARPU reduced to RM120/mth from RM142/mth a year ago.

Source: MIDF Research - 21 Jul 2017