Maxis Bhd
(Feb 9, RM6.99)
Maintain market perform with unchanged target price of RM7.16. Financial year 2014 (FY14) core profit after tax and minority interest of RM1.9 billion, 9% lower year-on-year (y-o-y), came in within expectations and accounted for 104% of our and 100% of the street’s full-year estimate.

A total of 16 sen dividend per share (DPS), which includes a fourth interim dividend of eight sen and a final dividend of eight sen) was declared as expected. The fourth interim dividend ex-date has been set on Feb 25 while the final dividend ex-date will be determined post the company’s annual general meeting.

Revenue for FY14 declined by 8% y-o-y to RM8.4 billion as a result of lower services revenue (-3% to RM8.3 billion) and non-services revenue (that is device and hubbing business, -72% to RM160 million). 

The lower services revenue was primarily due to lower voice (-4%) and short messaging service (SMS) (-32% to RM783 million) earnings contributions. Mobile Internet revenue, however, improved by 16% to RM2.3 billion, partially mitigating the lower voice and SMS usage. 

Normalised earnings before interest, taxes, depreciation and amortisation (Ebitda), meanwhile, declined by 7% to RM4.2 billion while margin improved to 50.1% (against 49.8% a year ago) as a result of lower traffic, device-related expenses and staff costs.

Quarter-on quarter (q-o-q), turnover for the fourth quarter (4Q) FY14 climbed 3% to RM2.1 billion, thanks to the higher service revenue (2%) that was mainly driven by higher voice and data segment. The former was mainly fuelled by higher customer traction gained in its Hotlink and MaxisONE Plan while the latter was driven by its “worry free” plans. 

On a normalised basis, Ebitda dropped by 7% to RM1 billion with a margin of 47.1% (against 51.8% in 3QFY14) as a result of the higher operating cost and the reversal of staff cost (RM44 million) in 3QFY14.

Maxis recorded a total of 498,000 subscriber net adds in 4QFY14, bringing its total subscriber base to 12.9 million. The higher subscribers added was mainly led by the prepaid segment (543,000, as a result of higher traction gained by #Hotlink) while the post-paid segment continued to suffer with a 45,000 loss in subscribers due to the re-pricing impact. 

On an average revenue per user (Arpu) basis, the prepaid stayed at RM35 while post-paid improved RM3 to RM97 due to seasonality factor. Having said that, its MaxisONE Plan continued to gain traction with the subscriber base now at more than 250,000 and generating Arpu of RM150.

Its blended smartphone penetration rate improved to 57% (+3% q-o-q; mainly boosted by strong prepaid uptake) with 67% recorded in the post-paid segment and 54% in the prepaid.

We expect low single-digit service revenue growth in FY15 and an absolute Ebitda similar to the FY14 level. Capital expenditure is expected to stay at RM1.1 billion with dividend policy unchanged (target payout ratio of not less than 75% of consolidated profit after tax).

Core net profit for FY15 is reduced to RM1.96 billion (-4.4%) after taking management’s latest guidance into the consideration. Meanwhile, we introduce our FY16 estimated numbers; we expect Maxis core net profit to hit RM2.1 billion (9% y-o-y) on the back of higher revenue growth and operational efficiency. — Kenanga Research, Feb 9

This article first appeared in The Edge Financial Daily, on February 10, 2015.