INVESTMENT HIGHLIGHTS

• 9MFY18 normalised earnings down by -2.9%yoy to RM1.5b, in-line with our expectation

• Postpaid revenue continue to enlarge, driven by good response from hotlink postpaid flex and MaxisONE Share

• Leveraging on data analytics for segmental and personalised offerings to defend the prepaid revenue

• Maintain NEUTRAL with a revised target price of RM5.67

Quarterly earnings trended lower. Maxis’ 3Q18 normalised earnings came in at RM518m, a decrease of -7.7%yoy. The weaker earnings was mainly attributable to decline in prepaid revenue in view of continued SIM consolidation, migration from prepaid to postpaid and intense price competition. In addition, the group also incurred one time World Cup sponsorship.

In-line with expectations. Cumulative 9MFY18 normalised earnings amounted to RM1,508m. This translates into a marginal contraction of - 2.9%yoy, despite a -4.2%yoy decline in group revenue. All in, the group’s 9MFY18 financial performance came in within ours and consensus expectations, accounting for 74.8% and 78.0% of full year FY18 earnings estimates respectively.

Nine consecutive quarters of postpaid growth. 2Q18 postpaid revenue increased by +2.8%yoy to RM1,025m. This was premised on higher postpaid subscriber base of 3.1m (+8.39%yoy).Hotlink postpaid flex and MaxisONE Share continued to be strong catalysts driving incremental port-ins of entry-level Postpaid subscribers. Note that inclusive of this quarter, the Postpaid subscriber base has been expanding steadily for the past nine quarters since 3Q16. Meanwhile, Postpaid ARPU remained resilient at RM93 per month.

Prepaid revenue stabilising. As expected, prepaid revenue continue to decline, albeit slower pace. For the quarter-in-review, the prepaid revenue contracted by -10.1%yoy to RM851m. Sequentially, it is noteworthy that the rate of decline has reduced to -0.3%qoq. This was mainly premised on solid growth of mobile internet revenue which contributed to stable prepaid ARPU of RM42. The group has been leveraging from data analytics for segmental and personalised offerings, which attracted high data users.Dividend. The group declared 3Q18 dividend of 5sen per share. This led to 9MFY18 dividend of 15sen per share, intandem with 9MFY17’s quantum.

Capital expenditure (capex). 3QFY18 capex came in -28.5%yoy lower at RM195m. This was mainly due to higher spending on IT transformation incurred in 3QFY17. On a cumulative basis, capital spending reduced by -20.6%yoy. This is in-tandem with the completion of network modernisation and lower investment in 4G LTE rollout. At present, Maxis’ 4G LTE population coverage has reached 92%.

Impact. No change to our earnings estimates at this juncture.

Target price. We are revising our target price to RM5.67 (previously RM5.96). Note that we are updating the stock’s average low PER of the group over the past four years from 23x to 22.5x. The slightly lower PER is also justified given the progressive loss of contribution from Umobile.

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 is further supported by the Hotlink postpaid flex and MaxisONE Share proposition. Coupled with stable postpaid ARPU, the postpaid segment has continuously outperformed. Meanwhile, the prepaid segment has shown commendable improvement as the group leverage on data analytics to target individual subscribers. As a results, the quarterly contribution from the prepaid segment has seems to stabilise. In the near term, the group’s service revenue would still be negatively impacted by the progressive termination of 3G network services with Umobile. We do not expect the group would be able to offset the loss of contribution from Umobile organically in the near term. 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 Oct 2018