PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts /B r ief ing N o t e
1 June 2010
MARKET DATELINE

Maxis Share Price

Fair Value
:
:
RM5.22
RM6.20
Delivering On Dividends Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (MAXIS; Code: 6012) Bloomberg: MAXIS MK

Net Core Net
FYE Turnover profit EPS EPS Growth PER C.EPS* P/NTA Gearing ROE NDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 8,611.0 2,232.0 29.8 31.1 (2.7) 16.8 NA 0.4 26.9 2.9
2010f 9,631.3 2,488.2 33.2 33.2 6.6 15.7 32.8 NA 0.4 26.8 6.7
2011f 10,449.1 2,714.4 36.2 36.2 9.1 14.4 34.2 NA 0.4 28.0 6.7
2012f 11,099.2 2,940.5 39.2 39.2 8.3 13.3 36.0 NA 0.3 29.8 6.7
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ Within expectations. 1QFY10 net profit of RM552m (+0.9% yoy; -4.8% Above
qoq, based on core profits) accounted for 22.2% of our and 22.4% of the In Line
full-year consensus estimates. However, we consider the results to be Below
within expectations as we expect stronger performance in the coming
Issued Capital (m shares) 7,500.0
quarters.
Market Cap (RMm) 39,150.0
♦ EBITDA margin expanded qoq on stricter cost control. QoQ, group Daily Trading Vol (m shs) 5.1
52wk Price Range (RM) 5.00 - 5.53
revenue declined by 2.7% largely due to lower mobile revenue (-2.5%)
Major Shareholders: (%)
arising from: 1) a 3.1% decline in voice revenue on weaker usage; and 2)
Maxis Communications 70.0
a 1.4% decline in non-voice revenue. However, 1Q EBITDA margin
expanded by 0.3%-pt qoq to 50.3% mainly due to lower sales and
marketing expenses (1Q: 3.9% of total revenue vs. 4Q: 4.6%), bad debt
expenses (1Q: 1.4% of total revenue vs. 4Q: 1.8%) and general and FYE Dec FY10 FY11 FY12
administration expenses (1Q: 6.6% of total revenue vs. 4Q: 6.9%). EPS chg (%) - - -
Var to Cons (%) 1.0 5.9 9.0
♦ ARPU declined qoq. Total postpaid subscriptions stayed flat qoq but
Share Price Chart
prepaid and broadband net adds stood at 351k (4Q: 481k) and 49k (4Q:
75k) respectively on the back promotional packages that appeared to have
been well received. Postpaid ARPU declined by RM5 qoq (-4.7%) to RM102,
mainly due to a 5% qoq decline in MOU that was partly mitigated by a
0.4% increase in RPM. Prepaid ARPU declined by RM3 qoq (-7.5%) mainly
due to a 7.5% decline in RPM. On the other hand, broadband ARPU fell by
RM16 qoq and this was mainly due to: 1) the launch of free 2-month
subscription promotional packages in 4Q09; and 2) lower take up rates for
packages with higher subscription fees. Nevertheless, management
Relative Performance To FBM KLCI
expects ARPUs to stablise ahead.

♦ 1st interim DPS of 8 sen. Maxis declared a first interim single-tier DPS of
8 sen, which translates to a net yield of 1.5% and a payout ratio of FBM KLCI
108.2% based on 1Q profit. The entitlement for the 1st interim dividend is
15 Jun ’10 while payment date is 18 Jun ’10.
Maxis

♦ Risks. The risks include: 1) weaker-than-expected net adds; 2) execution

(e.g. network upgrades and expansion); and 3) all-out price war.

♦ Forecasts. Apart from the upward revisions to our FY12/10-12 DPS

Chye Wen Fei
projections, our earnings forecasts are unchanged. (603) 9280 2172
chye.wen.fei@rhb.com.my
♦ Investment case. No change in our DCF-derived fair value (WACC=8.4%,
TG=1.5%) RM6.20 and our Outperform recommendation on the stock. David Chong, CFA
(603) 9280 2186
Please read important disclosures at the end of this report. david.chong@rhb.com.my

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Briefing Highlights

♦ Revenue growth projection of high single-digit maintained. Notwithstanding the slow start to the year,
management remained positive that revenue will grow at high single-digit, supported by: 1) subscriber growth
stemming from rising multiple-sims usage, ample growth potential in the underserved areas (in particular, the East
Coast and East Malaysia) and favourable demographic structure; and 2) stronger contribution from non-voice
revenue (both broadband and advanced data services). Revenue growth aside, management also appeared to be
confident that EBITDA margins would be maintained above the 50% mark and this is mainly on the back of ongoing
cost-control measures and strong data revenue growth ahead, which would help mitigate ongoing pressures on
voice revenue. In addition, management believes ARPUs would likely stabilise in the next few months ahead.

♦ Dividend. Maxis declared a first interim single-tier DPS of 8 sen, which translates to a net yield of 1.5% and a
payout ratio of 108.2%, based on 1Q profit. The entitlement for the 1st interim dividend is 15 Jun ’10 while payment
date is 18 Jun ’10. Management provided further clarity on its dividends and have committed to paying a total
interim net DPS of 32 sen (interim DPS of 8 sen/quarter), plus a final net DPS to be determined later (FY09: 3 sen,
net) given its stable EBITDA margin (which continued to remain above the 50% mark) and strong balance sheet
(annualised net debt/EBITDA of 1.1x that is well below its threshold of 1.75-2.0x). This implies a net payout ratio of
96.4% (excluding final DPS) and well above our projected FY10-12 net DPS of 24.9-29.4 sen (based on 75%
payout ratio). Consequently, we are now raising our FY12/10-12 DPS forecasts by 19-40.6% to 35 sen p.a., which
translates to a payout ratio of 105.4%/96.6%/ 89.2% for FY10/11/12 respectively. Despite the upward reivisons,
Maxis’s net debt/EBITDA is projected to remain at a low 0.8x, 0.7x and 0.5x for FY12/10-12, well below its
threshold of 1.75-2.0x. This suggests that there could still be further upside potential to dividends.

♦ iPhone sales went up despite seeing competition from Digi. Ready to bring in iPad. Digi’s move to offer
iPhone packages since end-Mar has helped Maxis in driving iPhone sales and management attributed this to: 1) the
concerted efforts by both telco players in marketing iPhones; and (2) the rising applications for iPhones.
Management said it is now ready to distribute the iPad and it will be the first micro sim-card developer for the iPad.

♦ Capex. YTD, Maxis incurred capex of RM135m, comprising the roll-out of: (1) 313 2G sites; (2) 197 3G sites; and
(3) 366 HSPA sites. More than 95% of the 3G sites are HSPA-ready as at 31 Mar 10. Management guided that
capex will accelerate in the coming quarters (and part of the capex will go to the initial expansion of FTTH and other
last mile fixed access) but kept to its total capex guidance of RM1.4bn for FY10.

♦ Capital management. Finally, management reiterated that they are prepared to gear up the balance sheet in
order to achieve a more optimal capital structure, but no details were provided as to timing. We see the better-
than-expected dividend announcement as a reaffirmation of management’s commitment. We project a net
debt/EBITDA of 0.7x by end-2010, which leaves considerable room for capital management potential given that
management would still be comfortable with a net debt/EBITDA of 1.75-2x.

Risks

♦ Risks to our view. The risks include: 1) weaker-than-expected net adds; 2) execution (e.g. network upgrades and
expansion); and 3) all-out price war.

Forecasts

♦ Earnings forecasts. Apart from the upward revisions to our FY12/10-12 DPS projections, our earnings forecasts
are unchanged.

Valuations And Recommendation

♦ Outperform call reiterated. No change in our DCF-derived fair value (WACC=8.4%, TG=1.5%) RM6.20 and our
Outperform recommendation on the stock.

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Table 2: Results review

QOQ YoY
FYE Dec (RMm) 1Q09 4Q09 1Q10 (%) (%) Comments
Revenue 2,128 2,211 2,152 (2.7) 1.1
Declined qoq on: 1) lower blended ARPU; and 2) Lower gateway
revenue on several submarine cable cuts and stronger RM against
the US$.

EBITDA 1,013 1,106 1,082 (2.2) 6.8

Lower revenue was partly offset by lower operating expenses.
Dep/Amort (267) (289) (267) (7.6) 0.0
EBIT 746 817 815 (0.2) 9.2
Int inc 10 4 5 25.0 (50.0)
Int exp (11) (49) (55) 12.2 >100
Assoc 0 0 0 nm nm
Exceptionals 0 (77) 0 (100.0 nm
IPO-related expenses of RM24m and discount for IPO shares to
)
retail investors of RM53m.
Pretax 745 695 765 10.1 2.7
Tax (198) (192) (213) 10.9 7.6
MI 0 0 0 nm nm
Net profit 547 503 552 9.7 0.9
Core PAT 547 580 552 (4.8) 0.9

Margins (%)
EBITDA 47.6 50.0 50.3
EBIT 35.1 37.0 37.9
Pretax 35.0 31.4 35.5
ETR 26.6 27.6 27.8
Net profit 25.7 22.7 25.7
Net profit 16.4 26.2 25.7

Maxis did not provide the corresponding 4Q08 proforma results in their results announcement.

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Table 3 : Key Statistics

qoq yoy
FYE Dec 1Q09 4Q09 1Q10 (%) (%) Comments
Subscribers (‘m)
- postpaid 2.66 2.71 2.71 0.0 2.1
- prepaid 8.46 9.32 9.67 3.8 14.3
Thanks to robust growth in the youth segment.
- broadband 0.15 0.26 0.31 18.6 >100
Higher qoq on promotional packages.
- Total 11.12 12.03 12.38 2.9 11.4

Net adds (‘000)

- postpaid 151 0 0 nm -
- prepaid (130) 481 351 (27.0) >100
- broadband 11 75 49 (34.7) >100
- Total 21 481 351 (27.0) >100

ARPU (RM)
- postpaid 102.3 107.0 102.0 (4.7) (0.3)
- prepaid 42.1 40.0 37.0 (7.5) (12.1)
- broadband 96.6 85.0 69.0 (18.8) (28.6)
QoQ drop due to: 1) the launch of free 2-month subscription
promotional packages in the previous quarter; and 2) Lower
take up rate for packages with higher subscription fees.
- Blended 54.3 55.0 52.0 (5.5) (4.2)

AMPU (mins)
- postpaid 365 377 358 (5.0) (2.0)
Declined qoq on seasonal factors
- prepaid 111 124 122 (1.6) 9.9
As above.
- Blended 168 181 173 (4.4) 2.8

Source: Company, RHBRI

Table 4 : Earnings Forecasts Table 5 : Forecast Assumptions

FYE Dec (RMm) FY09PF FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 8,611.0 9,631.3 10,449.1 11,099.2 Subscribers (m)

- Postpaid 3.11 3.41 3.71
EBITDA 4,337.0 4,832.1 5,272.1 5,609.0 - Prepaid 9.72 10.07 10.37
EBITDA margin (%) 50.4 50.2 50.5 50.5 - Broadband 0.41 0.56 0.66
Total 13.24 14.04 14.74
Depn & amortisation (1,179.0) (1,264.9) (1,389.6) (1,462.1)
ARPU (RM)
EBIT 3,158.0 3,567.2 3,882.5 4,146.9 - Postpaid 106 107 107
EBIT margin (%) 36.7 37.0 37.2 37.4 - Prepaid 41 40 40
- Broadband 95 92 90
Net Interest (48.0) (238.5) (251.3) (226.3)
Associates 0.0 0.0 0.0 0.0 Capex (RMm) 1,400 1,300 1,200
EI (103.0) 0.0 0.0 0.0
Pretax Profit 3,007.0 3,328.6 3,631.3 3,920.6
Tax (775.0) (840.5) (916.9) (980.2)
Minorities 0.0 0.0 0.0 0.0
Net Profit 2,232.0 2,488.2 2,714.4 2,940.5
Core Net Profit 2,335.0 2,488.2 2,714.4 2,940.5
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and
information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an
offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever
and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time
have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy
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may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans
of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher
risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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