Maxis Bhd (Dec 1, RM5.49)
Maintain hold at RM5.50 with a revised target price of RM5.40 (from RM5.50): Results were below expectations, with 9MFY11 net profit accounting for only 69% of our full-year forecast. Although earnings before interest, tax, depreciation and amortisation (Ebitda) margin still led the industry at 50%, it has slipped further. We expect less than 49% in 2012 on higher home broadband start-up costs and cut our FY11 by 7% and FY12 by 13%. Discounted cash-flow-based (DCF) fair value is lowered to RM5.40 but Maxis is a “hold” for the dividend yield of 7.3%.
Maxis continued to lose prepaid voice subscribers, while the postpaid subscriber base was stable. Efforts to improve revenue are working to an extent, as both post and prepaid tariffs under its new stricter definition have improved. Still, it is too early to say this will be sustained as call minutes also suffered slightly following the higher tariffs. This trend bears watching for at least one more quarter.
Not surprisingly, given that Maxis is known for having the best 3G network, non-voice revenue rose 18% year-on-year (y-o-y) and 8% quarter-on-quarter (q-o-q) to 44% of mobile revenue in 3QFY11 from 42.7% in 2QFY11. Non-SMS Internet and data services contributed 59% of non-voice revenue, a higher percentage than before, but y-o-y growth is definitely slowing due to the higher base. On the SMS side, higher demand pre and post-Hari Raya bolstered revenue with healthy q-o-q growth.
In the long term, home fixed services are definitely the way to go in order to combat failing voice revenue. In the near term however, we expect subscriber acquisition costs to weaken margins and hurt profit. While execution could finally start tracking ambitions, unless it offers significantly more attractive bundling discounts, Maxis’ fixed broadband packages are simply not attractive relative to UniFi. With IPTV likely to be launched only in mid-2012, we expect start-up losses to continue.
While we have cut our 2011/12 forecasts, management is guiding for lower capital expenditure of RM1.1 billion in 2011, with expectations it will be significantly lower than RM1 billion in future. This serves to support cash flow and dividends. — Maybank IB Research, Dec 1
This article appeared in The Edge Financial Daily, December 2, 2011.
Maintain hold at RM5.50 with a revised target price of RM5.40 (from RM5.50): Results were below expectations, with 9MFY11 net profit accounting for only 69% of our full-year forecast. Although earnings before interest, tax, depreciation and amortisation (Ebitda) margin still led the industry at 50%, it has slipped further. We expect less than 49% in 2012 on higher home broadband start-up costs and cut our FY11 by 7% and FY12 by 13%. Discounted cash-flow-based (DCF) fair value is lowered to RM5.40 but Maxis is a “hold” for the dividend yield of 7.3%.
Maxis continued to lose prepaid voice subscribers, while the postpaid subscriber base was stable. Efforts to improve revenue are working to an extent, as both post and prepaid tariffs under its new stricter definition have improved. Still, it is too early to say this will be sustained as call minutes also suffered slightly following the higher tariffs. This trend bears watching for at least one more quarter.
Not surprisingly, given that Maxis is known for having the best 3G network, non-voice revenue rose 18% year-on-year (y-o-y) and 8% quarter-on-quarter (q-o-q) to 44% of mobile revenue in 3QFY11 from 42.7% in 2QFY11. Non-SMS Internet and data services contributed 59% of non-voice revenue, a higher percentage than before, but y-o-y growth is definitely slowing due to the higher base. On the SMS side, higher demand pre and post-Hari Raya bolstered revenue with healthy q-o-q growth.
In the long term, home fixed services are definitely the way to go in order to combat failing voice revenue. In the near term however, we expect subscriber acquisition costs to weaken margins and hurt profit. While execution could finally start tracking ambitions, unless it offers significantly more attractive bundling discounts, Maxis’ fixed broadband packages are simply not attractive relative to UniFi. With IPTV likely to be launched only in mid-2012, we expect start-up losses to continue.
While we have cut our 2011/12 forecasts, management is guiding for lower capital expenditure of RM1.1 billion in 2011, with expectations it will be significantly lower than RM1 billion in future. This serves to support cash flow and dividends. — Maybank IB Research, Dec 1
This article appeared in The Edge Financial Daily, December 2, 2011.
