Maxis Bhd has delivered commmendable returns to shareholders in recent years, considering the highly competitive landscape and price pressures it faces.

Last year, its return on equity (ROE) came in at 45%, up from 39% in FY2015 and 32% in FY2014. Its adjusted and weighted three-year ROE was 41%, putting it well ahead of companies with similar market capitalisation of RM40 billion and above. DiGi.Com Bhd’s market cap was just below RM40 billion at the BRC cut-off date, making it the champion in the Big Cap Companies category (RM10 billion to RM40 billion market cap).

Commendable as these figures are, the growing headwinds means it will be a tough feat for Maxis to keep up its ROE performance this year.

Nevertheless, it has displayed admirable operational trends in the recent quarters and its earnings so far this year have stayed resilient. In the second quarter ended June 30, net profit rose 18% from a year ago to RM574 million as revenue from both the postpaid and prepaid segments increased. That helped its first half net profit rise 7.3% to RM1.08 billion, which was slightly above an analyst consensus forecast.

However, the subsequent quarters are expected to be weaker. For one, it is expected to rake in lower data roaming revenue following the termination of its 3G radio access network arrangement with U Mobile Sdn Bhd. Maxis had announced in June that the termination would be done in stages over an 18-month period ending Dec 27, 2018. Recall that U Mobile had contributed decent aggregated revenue of about

RM1 billion to Maxis’ top line over the past five years.

And, for another, it will be difficult for Maxis to grow its prepaid revenue with Telekom Malaysia Bhd’s “webe” expected to disrupt the market with the upcoming launch of its prepaid plans in the second half of this year.

As it is, Maxis lost 272,000 prepaid subscribers in 2Q2017 due to high rotational churn within the segment. While its prepaid revenue was 2.1% lower from 1Q2017, its average revenue per use was unchanged at RM42. Maxis is not overly concerned by the loss in subscribers as it targets “high value” prepaid customers given its enhanced distribution network over over the past 18 to 24 months.

Despite having lost its lead last year as the country’s top mobile player in terms of number of subscribers, Maxis still managed to maintain its dominance in the postpaid space. In 2Q2017, it added 41,000 postpaid subscribers thanks to strong uptake of its MaxisONE plan, bringing the total number of its postpaid subscribers to 2.8 million.

“On the bright side, we expect Maxis to continue leading in terms of network coverage (LTE population coverage has been ramped up to 89% from 71% as at end-2015), albeit a narrowed gap between Maxis and its peers over the past 18 months,” UOB Kay Hian Research says in a July 21 report. It expects Maxis’ core net profit in FY2017 to fall 6% to RM1.856 billion.

What’s interesting to note is that Maxis’ normalised earnings before interest, taxes, depreciation and amortisation (Ebitda) margin is still the highest in the industry — it stood at 51.7% compared with 49.1% in 2Q2016. The margin is, in fact, one of the highest in the industry worldwide.

Despite the better performance in 1H2017, Maxis is maintaining its targets for FY2017 and expects service revenue, Ebitda and base capital expenditure (capex) to come in at similar levels as FY2016.

“Our priority is to continue to deliver a great network experience and create an unmatched customer experience across all channels. This will only get better with our ambitions for a full digitalisation and we are on track towards this,” CEO Morten Lundal said in a recent statement.

In June, Maxis raised RM1.66 billion via a private placement of 300 million new shares to meet the needs of future capex and spectrum fee requirements. To some extent, it also alleviates investor concerns about its ability to pay dividends amid potentially lower earnings ahead. It has paid investors an annual net dividend per share of 20 sen since FY2015.