Maxis’  FY14  results  came in  slightly  below  our  expectations.  Maintain NEUTRAL due to a  lack of catalysts.  We raise our TP to  MYR6.55 (6.3% downside)  from MYR6.35.  Data  monetisation will  likely  still be the main growth  story  going  forward.  Management  expects  service  revenue  to grow at a low single-digit level in 2015. Future dividends are likely to belower as Maxis will no longer be incurring debt to pay dividends.

Slightly  below  expectations.  Maxis’  full-year  core  net  profit  of MYR1.91bn (-8.9% YoY) fell shot of our estimated MYR2.1bn, although it was in line with consensus estimates. YoY earnings continued to be hit by the decline in SMS and voice revenue, although we note that revenue decline has likely bottomed as Maxis has recorded a  positive low singledigit  QoQ  revenue  growth.  4Q14  EBITDA  margin  was  slightly  hit  by higher expenses during the quarter, although FY14 EBITDA margin was stable at 50%.  As expected, Maxis announced a DPS of 8 sen, bringing total DPS to 40.0 sen.

Briefing highlights. Maxis has guided for service revenue  to continue on  its  positive  growth  trajectory,  albeit  in  the  low  single-digit  growth region. EBITDA margin is expected to remain stabl e at around the 50% level.  Management will  continue  to  be  focusing  on  growing  its  data segment and will continue to roll out more LTE sites (currently only at 1/3 population coverage). On future dividends, management has guided for at  least  75%  payout  from  its  PAT  or  a  maximum  of  its  free  cash  flow (FCF)  as it will no longer be incurring debt to pay dividends. Based on our calculations, its available FCF could translate into a DPS of above 30 sen/share, thus maintaining its 5% dividend yield.

Forecasts.  We  have  trimmed  our  FY15/16  earnings  forecasts  by 20%/17% after updating our FY14 figures and as to be more in line with management’s growth guidance. We have introduced our FY17 figures.

Maintain  NEUTRAL.  Our  DCF-based  TP  is  nudged  up  to  MYR6.55 (from  MYR6.35)  after  rolling  over  our  valuation  period  and  slightly revising  our  WACC  assumption  to  7.6%  (from  7.7%).  Although  we believe that Maxis’ worst days are behind it, earnings upside will likely be limited  due  to  the  continued  decline  in  legacy  revenues  and  the increasingly competitive telco landscape.

Briefing highlights
Maxis hosted a conference call in line with the results and this was attended by its CEO, Mr Morten Lundel and CFO, Mr  Nasution Mohamed.  Management shared its guidance and outlook for 2015 during the call.

Low single-digit service revenue  growth. Generally, management will be focusing on  growing  its  data  segment  as  well  as  providing  better-quality  services  for  its customer base  in 2015.  The company has guided for service revenue to continue onits  positive growth trajectory, albeit in the  low single-digit growth  region,  as earnings start to normalise post-transformation  and as its MaxisOne Plan starts to show more meaningful  contribution.  Currently,  there  are  about  250,000  subscribers  on  the MaxisOne Plan, with ARPU of about MYR150 (vs ARPU of MYR90+ for its legacy plans). Management is  also looking at ways to optimise its wallet-sharing strategies such as through the introduction of more add-on content and offering more fixed lineproducts.  We  believe  that  the  low  single-digit  guidance  is  reasonable,  given  that growth prospects are unlikely to be  exciting due to the continued decline in legacy (SMS  and  voice)  revenues  as  well  as  the  highly  competitive  Malaysian  telco landscape.

EBITDA to  remain stable.  Management expects EBITDA margin to stay  at around the 50% level, although we believe that this could be slightly lower as we expect the company to incur more marketing costs going forward. We note that Maxis’ guidance has not factored in the GST  impact, although management indicated that the impact of GST could be positive on its EBITDA, due to the reduction in expenses.

Capex mainly to grow its data segment. Management is guiding for FY15 capex ofabout MYR1.1bn.  Management acknowledges that data will continue to  be  the main growth driver going forward, and as such, the capex to be incurred will be focusing on modernising more  of its 2G and 3G networks in the regional space  (currently 75% is modernised)  as  well  as  rolling  out  more  LTE  sites  (currently  only  at  about  1/3population  coverage).  Maxis  will  also  be  embarking  on  a  3-year  IT  transformation programme, and will allocate some of its capex for this purpose.  On the prospects ofdata  monetisation,  management  believes  that  data is  still  underpriced  in  Malaysia. That  said,  the  propensity  of  consumers  to  buy  more  data  is  increasing  and management is hoping to tap onto this going forward.

Dividend  guidance  going  forward.  Management  has  guided  for  future  dividend payout of at least  75% of  its  consolidated PAT. Given that it will no longer be  taking on more debt to pay dividends, future dividend payout  will be to a maximum of its available  free  cash  flow.  As  such, future  dividends  will likely  be  lower  than  the  40 sen/share  that it  has  been  paying  previously.  That  said,  based  on  our  calculationsand  assuming a 100% payout from its free cash flow,  Maxis could still be paying at least 30 sen/share going forward. This  will still translate into a  decent gross dividend yield of about 5% for 2015.

Key risks
Key  risks  include:  i)  a  lower-than-expected  pickup  in  data  revenue;  and  ii) competitors chipping away its market share.

Forecasts
Forecasts.  We  have  trimmed  our  FY15/16  earnings  forecasts  by  20%/17%  after updating our FY14 figures and as to be more in  line with management’s guidance. We have introduced our FY17 figures.

Valuation and recommendation
Maintain NEUTRAL.  Our DCF-based TP is nudged up to MYR6.55 (from MYR6.35) after rolling over our valuation period and slightly revising our WACC assumption  to 7.6% (from 7.7%) upon  updating our FY14 figures. Although we believe that Maxis’ worst days are behind it and it will likely start to be on a positive growth trajectory, we believe that earnings upside will be limited due to: i) the continued decline in legacy revenues; ii) the struggle to optimally monetise data; and iii) the intense competition in the telco market.

Source: RHB