INVESTMENT HIGHLIGHTS

• Resilient 2Q18 earnings performance due to cost optimisation initiatives, lower net finance cost and lower effective tax rate.

• Encouraging take-up rate for MaxisONe plan led to continuous growth in postpaid subscriber base

• Prepaid subscriber base shrunk in view of SIM consolidation and migration to postpaid

• Maintain NEUTRAL with a revised target price of RM5.80

Resilient 1H18 earnings. Maxis’ 2Q18 normalised earnings came in at RM480m. This is despite a -4%yoy decline in revenue to RM2.2b. The resilient earnings was mainly supported by continuous cost optimisation initiatives, lower net finance cost and lower effective tax rate. This led to 1H18 normalised earnings of RM990m (+0.3%yoy). All in, the group’s 1H18 financial performance came in within our and consensus expectations, accounting for 49.1% and 50.0% of FY18 full year earnings estimates respectively.

Steady rise in postpaid subscriber base. 2Q18 postpaid revenue improved by +6.7&yoy to RM1.0b. This was driven by the increase in postpaid subscriber base to approximately three million as the take-up rate for MaxisONE plan remains encouraging. Inclusive of this quarter, the postpaid subscriber base has been expanding steadily since 3Q16. However, the blended postpaid ARPU declined to RM94/mth from RM96/mth as at 2Q17.

Prepaid subscriber base continues to dwindle. 2Q18 prepaid revenue declined by -13.0%yoy to RM854m. The segment revenue was negatively impact by SIM consolidation, migration from prepaid to postpaid and intense price competition. On another note, the prepaid ARPU stand at RM42, mainly supported by offering of Hotlink Red prepaid pack which has attracted high data users.

Dividend. The group declared 2Q18 dividends of 6.1sen per share. This led to 1H18 dividends of 12.8sen per share, which is lower than 1H17 dividends of 14.3sen per share.

Impact. We are maintaining FY18 earnings estimates. However, we are reducing FY19 earnings estimates by -6.2%. For FY19, we are assuming a more conservative growth for the postpaid subscriber base. Meanwhile, we are now expecting the prepaid subscriber base to decline further in view of heightened competition. As a result, we are anticipating a decline in FY19 earnings of 2.5% as opposed to a growth of 4.0% previously.

Target price. Post our FY19 earnings adjustment, we are deriving a new target price of RM5.80 (previously RM6.16). This is premised on pegging target PER of 23x, which is the average low PER of the group over the past four years, against revised FY19 EPS of 25.2sen.

Maintain NEUTRAL. The revamped MaxisONE plan, which offers better value proposition, has continues to show good traction as the postpaid subscriber base continues to increase steadily. This, however, negatively impact the postpaid ARPU as we view that the postpaid subscribers will be inclined to sign-up the entry level postpaid plan. Meanwhile, prepaid ARPU remained resilient due to the increase in data usage. Nonetheless, due to intense competition, the prepaid subscriber base continues to dwindle. We view that it would be difficult for Maxis to grow the prepaid revenue despite various attempts to introduce new product offering. Moreover, the group’s postpaid service revenue for FY18 will also be negatively impacted by the progressive termination of 3G network services with Umobile. Meanwhile, we expect the Maxis’ dividend yield to remain below 4% to meet its capital commitment and prepare for the upcoming spectrum reallocation exercise. All factors considered, we are keeping our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 19 Jul 2018