KUALA LUMPUR: Maybank Investment Bank Research has retained its Buy call on Axiata and upgraded Maxis to a Buy as they would benefit from the implementation of the Goods and Services Tax (GST) when implement in April 2015.
“GST would allow wireless operators a chance to pass on the 6% service tax they currently absorb in the prepaid segment.
“In reality, the benefits are likely less pronounced given elasticity and competition; we assume operators enjoy the equivalent of a 3% pass-through in service taxes for now,” it said.
Maybank Research said its sector picks are Axiata (maintain Buy, TP: RM7.80) and Maxis (upgrade to Buy, TP: RM7.40).
"Consequently we raise net profit of Axiata/Digi/Maxis by 2.5%/4.1%/3.2% in 2015, and 3.1%/5.6%/4.3% in 2016 respectively.
“For sensitivity purposes, every 1% pass-through in prepaid service tax raises net profit of Axiata/Digi/Maxis by 0.8%/1.4%/1.1% in 2015, and 1.0%/1.9%/1.4% in 2016 respectively,” it said.
Maybank Research said the wireless operators have been absorbing the 6% service tax in the prepaid segment since 1998.
With GST, they can pass on the 6% service tax they currently absorb in the prepaid segment. The theoretical impact of GST to operators is a direct flow-through of this previously-foregone revenue down to EBITDA.
The research house explains that in reality, the benefits are likely less pronounced, given 1) the potential elasticity impact (prepaid is a price sensitive segment after all), and 2) possibility of increased competition, which effectively means part of the new-found revenue gets returned back to customers in the form of lower tariffs.
Operators presently remain non-committal on their intentions with regards to GST treatment.
“On the back of our earnings upgrades, we raise target prices of wireless operators under our coverage by 3%-7%. Consequently, we upgrade Maxis to BUY (from Hold). Our sector picks are Axiata and Maxis, on the back of their underperformance in 2014,” it added.
