By Xavier Kong
AmResearch reinitiated coverage on Maxis Bhd with a “hold” recommendation, as well as a fair value of RM7.05, as the research house believes that Maxis now sees an upside, limited as it is, due to stable short-term earnings prospects.
“The group’s earnings prospects are stable but near-term growth remains unexciting given the sector’s competitive intensity amongst the three celcos, and the constraints on margin expansion as voice and SMS revenues are progressively replaced with faster-growing but lower-priced data income,” noted AmResearch.
The research house noted that Maxis, just as with its competitors, is also facing difficulties with monetising the rapidly increasing data consumption trend against the decline in higher-margin voice and SMS demand.
At the same time, rival Celcom has fielded intense competition through price-focused promotional packages since July 2015, which has resulted in more attractive mobile packages for consumers, leading to a high rotational churn and the loss of low tenure subscribers.
All of this, in addition to the implementation of the goods and services tax (GST) in April 2015, has led to Maxis experiencing a nett decline of 168,000 subscribers, of which 74% were prepaid customers, with the remaining 26% postpaid customers.
“While mobile subscribers may have declined, Maxis’ blended average revenue per user (ARPU) rose by RM2 quarter-on-quarter to RM49 per user in the third quarter of financial year 2015 (3Q15), a reversal in trend since 1Q15.
Although this indicates that Maxis is showing some traction in driving higher data usage from its much larger prepaid base, we are uncertain of the trend’s sustainability given that this segment is highly price-conscious,” noted AmResearch.
It was also noted that the recent launch of the MaxisONE Share and MaxisZerolution propositions had “garnered traction” with postpaid customers. However, these price-competitive bundles may constrain prospective margins moving forward.
It was noted that management had guided for a flat financial year 2015 forecast (FY15F) earnings before interest, taxes, depreciation and amortisation (Ebitda), although service revenue is expected to grow at low single digits.
“The convergence challenge from TM’s P1 rollout by mid-2016 has also further clouded longer-term margin visibility,” added AmResearch.
The slower economic outlook, along with the rising cost of living as well as a high national household indebtedness will, according to AmResearch, mean that consumers will continue to remain averse to any additional spending on mobile packages.
“Maxis’ enterprise value per Ebitda (EV/Ebitda) reached its three-year peak of 14 times in March last year as competitor Celcom continued to lose market share due to technical problems in its IT platform. However, as Celcom had begun to recover some of its customers in the second half of 2015, we view Maxis’ current FY16F EV/Ebitda of 13 times as fairly valued versus SingTel’s 14 times,” noted AmResearch.
As of 2.20pm, Maxis shares were last traded at RM6.68, up 1 sen.
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