INVESTMENT HIGHLIGHTS

• FY17 normalised earnings improved by +6.2%yoy, owing to effective cost optimisation initiatives
• Postpaid service revenue surpassed that of prepaid in FY17
• Lower capital spending in FY17 (-13.2%yoy) post completion of network modernisation and lower investment in 4G LTE rollout
• Maintain NEUTRAL with a revised target price of RM5.93

FY17 normalised earnings lifted by cost optimisation initiatives. Maxis’ 4QFY17 normalised earnings amounted to RM536m, a marginal increase of +0.9%yoy. This was led by improvement in EBITDA margin to 54.4% (4Q16: 53.6%) as a result of lower traffic, commission and other direct costs. Cumulatively, full year FY17 normalised earnings came in at RM2,081m (+6.2%yoy). This was led by expansion in postpaid subscriber base as well as effective cost optimisation initiatives.

Steady rise in postpaid subscriber base. Postpaid service revenue for full year FY17 increased by +4.2%yoy to RM4,118m. This was supported by enhanced value in both the MaxisOne Plan and device ownership proposition. As a result, MaxisONE plan’s subscriber base has expanded to above 2.0m.

Prepaid user base continue to dwindle. FY17 prepaid service revenue declined by -3.7%yoy to RM3,848m. This was mainly attributable to lower prepaid subscriber base which stands at 7.0m as at 4QFY17 in comparison to 7.9m recorded for 4Q16. The shrinking subscriber base was caused by aggressive price competition, SIM consolidation and migration to postpaid. Fortunately, this was partially mitigated by higher average ARPU of RM42 per month (2016: RM40 per month) as the group continued to attract high value subs.

Capital expenditure (capex). Maxis’s 4Q17 capex came in at RM382m, a reduction of -14.7%yoy. This led to lower full year FY17 capital spending of RM1,029m (-13.2%yoy). This was mainly due to the completion of network modernisation and lower investment in 4G LTE rollout. As at 4QFY17, Maxis has the largest 4G LTE coverage of 92%. Moving forward, management guided that base capex to be approximately RM1.0b.

Source: MIDF Research - 9 Feb 2018