Maxis’ 1HFY13  results  suggest  it  has  managed  costs  well,  which  was key  to  its  sequential  earnings  growth  amid  flat  service  revenue. However,  as  EBITDA  margin  may  be  squeezed  in  2H  as  marketing  and staff  costs  normalise  higher,  its  earnings  growth  may  still  be  tepid  in 2013.  Without  a  strong  earnings  growth  profile,  we  think  the  stock  is likely to underperform in a rising bond yield environment. 
 
- Within  expectations.  Maxis’ 1HFY13  core  net  profit  of  MYR1,102m  (-2.1%  y-o-y)  was  within  our  and  consensus  expectations,  accounting for 52% and 50% of the full-year estimates respectively. 

- Service  revenue  flat  sequentially.  The group’s  2Q  headline  revenue dipped  1.4%  q-o-q,  mainly  due  to  record-high  device  sales  in  1Q. However,  service  revenue  -  which  excludes  device  sales  comprising 4.5%  of  headline  revenue  -  was  flat  q-o-q  as  growth  in  mobile  internet (+6.0%)  and  wireless  broadband  (+4.9%)  mitigated  the  weakness  in voice and SMS. The telco’s 2Q EBITDA margin rebounded 2.6 ppt q-o-q to  50.8%,  mainly  owing  to  the  reversal  of  some  bonus  provision  and lower  marketing  expenditure.  This,  together  with  a  lower  effective  tax rate, boosted its core net profit by 7.1% q-o-q.   

- Briefing  highlights.  As  long  as  Maxis  sustains  its  y-o-y  non-voice revenue growth in 2H (1H: +7.5%), we believe it should be able to meet its  revenue  growth  targets,  assuming  voice  erosion  is  contained.  The telco’s long-term evolution (LTE) population coverage, currently at 10%, is  expected  to  reach  20%  by  year-end.  Meanwhile,  net  additions  for  its home service subscriptions, ie. for Maxis-Astro fibre with IPTV services, ticked up by a marginal 5.3k (1Q: 5k). As Management has indicated that the  fine-tuning  of  its  sales  and  installation  processes  is  largely completed, it is expected to enjoy better subscriber growth traction in 2H.

- Dividends.  Maxis  declared  a  second  interim  net  DPS  of  8.0  sen (translating to a 2Q EPS payout ratio of 114%). For FY13, we estimate a DPS of 40 sen.

- Forecasts. Our estimates for the company are unchanged.

Source: RHB