KEY INVESTMENT HIGHLIGHTS

• 3Q19 normalised dipped by -30.3%yoy to RM361m mainly due to loss of a wholesale agreement

• Cumulative 9M19 normalised earnings of RM1,156m (-6.5%yoy) was in-line with our expectation

• More investment channeled for the Home Fibre and Entreprise segments

• Annual dividend expected to be maintain at 20sen to support its capex commitment

• Maintain SELL with a revised TP of RM4.61

Weaker profit. Maxis’ 3Q19 normalised earnings dipped by -30.3%yoy to RM361m. This was mainly attributable to the loss of a wholesale agreement, and increase in investment for growth in Enterprise, fiber and customer experience. In addition, the depreciation and amortization as well as the finance cost also rose by +33.1%yoy and +11.7%yoy respectively. These leads to lower profit margin of 16% against 23% achieved in 3Q18.

Within expectations. Cumulatively, 9M19 normalised earnings came in at RM1,156m (-6.5%yoy), tracking the -2.6%yoy contraction in revenue to RM6,723m. All in, Maxis’ 9M19 financial performance came in within ours and consensus expectations, making up 70.6% and 71.7% of full year FY19 earnings respectively.

Quarterly postpaid revenue remained below RM1b. 3Q19 postpaid revenue decreased by -4.4%yoy to RM979m. This was mainly brought about by lower ARPU of RM90/mth (vs 3Q18 ARPU of 96). However, the contraction in ARPU was partly alleviated by the growing postpaid subscriber base of 3,232k (+12.4%yoy), driven by healthy demand of the family packages.

Prepaid revenue continues to contract, albeit slower pace. On the contrary, 3Q19 prepaid revenue shrunked by -6.7%yoy to RM794m. This was premised on lower subscription base of 6,328k (-4.7%yoy) which as due to the continued SIM consolidation, migration from prepaid to postpaid and reduced mobile termination rate. Meanwhile, ARPU remain relatively stable at RM41/mth.

Capital expenditure (capex). 3Q19 capex increased by +24.1%yoy to RM242m. This lead to higher 9M19 capex of RM636m (+23.7%yoy). This was mainly deployed for: i) enterprise segment, ii) improving reducancy of fibre network for better quality and service and, iii) investment in network capacity rollout and 5G readiness.

Dividend. The group maintained its quarterly dividend of 5sen for 2Q19. This lead to cumulative 9M19 dividend of 15sen. This is in-line with our full year FY19 dividend of 20sen. We view that the group will maintain its 20sen annual dividend payout in order to meet its capex commitment.

Source: MIDF Research - 29 Oct 2019