Maxis Bhd
(April 28, RM7.05)
Maintain hold with target price of RM6.70: Maxis Bhd bucked the trend by registering a quarter-on-quarter (q-o-q) revenue growth (against a seasonally strong fourth quarter of financial year 2014 [4QFY14]), but this has to be taken into context with the flattish-to-negative sequential growth seen through most of its FY14 ended Dec 31.
On a year-on-year (y-o-y) basis, Maxis turned in positive service revenue growth (+3.6% y-o-y) after at least two years of contraction — in line with improving operational parameters since 4Q14. Earnings before interest, taxes, depreciation and amortisation (Ebitda) are still registering a y-o-y contraction given the margin compression.
The improvement in revenue mainly came from the prepaid segment, where subs growth remained elevated with considerable gain in the migrant segment. Although there was a degree of price competition, the higher volumes still resulted in a net improvement in Maxis’ prepaid revenue (+9% y-o-y).
However, post-paid revenue was still impacted by data repricing (-2% y-o-y) undertaken in mid-FY14, although notably, Maxis has been registering net churn in its post-paid subscriber base since 4Q13.
The management is intent on further growth. Given the rapid increase in subscriber base and usage volumes, it indicated possibilities of raising capital expenditure moderately higher than the current guidance of RM1.1 billion.
The recent announcements on a cut in broadband pricing applies only to wireless broadband (WBB), mainly large screen, and is expected to have little impact on earnings, as WBB is not a key driver for mobile Internet.
Interim 1QFY15 dividend of five sen per share represents just approximately 60% of what was paid out in 1QFY14, in other words eight sen per share. Maxis is keeping its policy of more than a 75% payout and free cash flow as a ceiling. FY15’s forecast dividend yield of 3.5% is decent but not outstanding versus those in previous years.
At the current valuation (14 times FY15 forecast enterprise value/Ebitda and projections, we think the market has well factored in the recovery in Maxis’ earnings (Ebitda growth is still expected to remain flat this year on the management guidance versus consensus’ +3.8% forecast). Furthermore, our concern also revolves around the sustainability of this momentum once Celcom Axiata Bhd returns to the market from 2QFY15 onwards.
We maintain our “hold” call on Maxis with an unchanged fair value of RM6.70 per share. Maxis reported 1QFY15 core net profit of RM453 million, which was in line with expectations — accounting for 24% and 23% of our and consensus estimates respectively. — AmResearch, April 28
This article first appeared in The Edge Financial Daily, on April 29, 2015.