We downgrade Maxis to SELL (from Neutral) with a revised DCF-based TP of MYR5.70 (13% downside). We believe that the stock could see some share price correction as it is the most vulnerable to the yield reversal theme among the local telcos. Its weaker-than-industry core earnings CAGR of 0.9% (vs its peers’ average of 3%) and concerns over escalating price competition may further dampen sentiment.

Industry-defying performance. Although we have started to see some de-rating in the telcos’ share prices in recent months, we note that Maxis continues to outperform the market at 13.3% YTD vs the FBM KLCI. We believe that there could be room for further share price correction, driven mainly by its negative yield spread in recent months against the 10-year MGS bond yields, which suggests scope for yield expansion. We think that there is limited upside potential to dividends as its net debt/EBITDA ratio of 1.86x is close to Maxis’ internal cap of 2x, while capex will continue to remain high as it seeks to expand its LTE coverage.

Competition heating up. We believe the whole telco industry would continue to face an uphill battle to improve data monetisation, as the cellcos were compelled to offer attractive data plans in response to a pickup in competitive activities post-goods and services tax (GST) and to defend market share. The aggressive market landscape could impedethe recovery in its prepaid subscriber growth, while its new postpaid ONEPlan appears to be losing some of its appeal, as its rivals are offering more bang for the buck on bundled data plans.

Downgrade to SELL. We trim our FY15-17 earnings forecasts by 2-4% as we now expect ARPU and subscriber growth to remain flattish(previously low single-digit growth) over the next 1-2 years. Our DCFbased TP is revised to MYR5.70 (from MYR6.50) after our earnings revision and ascribing a higher risk premium of 6.7% in line with our house view (WACC of 7.9% from 7.5%). Downgrade to SELL (from Neutral) on: i) the stock being most vulnerable to the yield reversal theme among the local telcos with its dividend payout capped at FCF, ii) concerns over escalating price competition in the market, and iii) its weaker-than-industry core earnings CAGR of 0.9% (vs its peers’ average 3% CAGR). Key risks to our call include: i) an upside surprise in dividend payout, ii) better-than-expected growth, and iii) more subdued competition.