1H15 results bore no surprises. Maintain NEUTRAL with DCF TP of MYR6.50 (0.3% downside, WACC: 7.5%). Management appears relatively upbeat on 2H15, driven by LTE coverage expansion and the improvement in network quality while the industry’s competitive headwinds should subside. We make no change to our forecasts post the results call. We prefer Digi for exposure to the domestic telco sector.

In line. 1H15 core earnings made up 48-49% of our and consensus estimates. 2Q15 revenue grew 1.6% YoY (1H15: 2.6% YoY) but fell1.8% QoQ due to the goods and services tax (GST) impact and price promotions. EBITDA grew 5.2% QoQ as, unlike its peers, Maxis grossed-up the GST effect at the EBITDA level, which also contributed to the strong margin uplift sequentially. An expected, a 5 sen/share DPS has been declared, bringing cumulative DPS to 10 sen/share.

Key operational highlights. QoQ prepaid revenue and ARPU fell 3.5%/5.3% (YoY: +4.4%/-10%) repectively as Maxis gave out freebies totalling MYR50m to ease the burden on subscribers (subs) from the GST pass through. This is compared with the 1.1% decline in Digi.com’s(Digi) (DIGI MK, BUY, TP: MYR6.60) prepaid revenue. Maxis prepaid revenue would have been steady QoQ had the incentives been excluded. Postpaid revenue fell 1.2% QoQ despite the higher ARPU on the net deletion of 27,000 subs from the removal of certain volume-typed plans. Mobile internet (MI) users widened to 7.1m (2Q14: 5.8m) with penetration at 71% of Maxis’ subscriber base.

Guidance. Management has reaffirmed its FY15 guidance of: i) low single digit service revenue growth, ii) EBITDA at FY14 levels, and iii) base capex spending of MYR1.1bn. Risks to our forecasts are: i) competition turning irrational, ii) higher-than-expected capex. and iii) lower-than-expected dividend payout.

Maintain NEUTRAL and MYR6.50 TP. Our core earnings forecast, recommendation and DCF-based TP are unchanged at MYR6.50 (WACC: 7.5%, TG: 1.5%). We believe the recent de-rating in its share price has more or less priced in the competitive headwinds ahead. Maxis trades at 25.0-26.0x FY15F/FY16F P/Es and 14.0-15.0x FY15F/FY16FEV/EBITDA, at the higher end of its historical mean.

Briefing Highlights Maxis’ 2Q15 results call was hosted by CEO Morten Lundal and CFSO Nasution Mohamed. There were no surprises with its headline revenue, EBITDA and capex reaffirmed.  Competition. Like Digi, Maxis does not expect the pricing skirmish in the market to be prolonged. While it had responded to the aggression in the market, we note that Maxis has generally kept to its headline pricing and refrained from promotions that would be value destructive. For example, it opted to give more freebies to users rather than discounting the prices of its plans. That said, we think Maxis’ #Hotlink prepaid product is under attack from Celcom’s Magic plan and Digi’s Smart prepaid plan, which offer similar value propositions.  Capex intensity to remain high. Maxis expects its network modernisation exercise to be completed in 1H16, with further accelerated depreciation charges booked in subsequent quarters (1H15: MYR113m). Given the higher spending on site fiberisation and capacity, actual FY15 capex is likely to exceed its base guidance of MYR1.1bn. Maxis’ LTE coverage stood at 41% in 2Q15 (1Q15: 39%), which compares with Digi’s 35%, and is on track to reach 50% by yearend.

Key risks The key risks to our forecasts remain: i) competition in the market turning irrational, ii) higher-than-expected capex, and iii) lower-than-expected dividend payout.

Forecasts No change as we expect a better 2H.

Valuation and recommendation Maintain NEUTRAL. Our DCF TP is unchanged at MYR6.50 (WACC: 7.6%, TG: 1.5%). We think share price has more or less priced-in the competitive headwinds ahead following the recent de-rating. Maxis’ relatively less attractive prospective dividend yields of 3-4% (capped at its FCF) remains a stock dampener. We prefer Digi for exposure to the telco sector.