This article first appeared in The Edge Financial Daily on April 9, 2019
Maxis Bhd
(April 8, RM5.70)
Maintain underweight with an unchanged fair value (FV) of RM4.60: We maintained our “underweight” rating on Maxis Bhd with an unchanged discounted cash flow-derived FV of RM4.60 per share, based on a weighted average cost of capital discount of 6.4% and a terminal growth assumption of 2%. The FV implies a financial year 2019 forecast (FY19F) enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) of 12 times, and is on par with its three-year average.
Last week, Maxis launched an attractive mobile package to leverage its home fibre customer base, offering three free SIM cards with unlimited data, calls and SMSes valid until May 15 this year. Six months after, the unlimited data, calls and SMS promotion will be offered for each SIM card at RM98 per month with an additional RM49 per line, and RM128 per month for two more lines or RM43 per line.
After Nov 15 this year, these free lines will go at RM48 per month based on the unlimited data, calls or SMS plans. These new SIM cards allow new customers to port over from existing telephone numbers or opt for new ones. Given that Maxis currently does not offer an unlimited mobile data package — its highest priced MaxisOne plan is at RM188 per month with a quota of 60 gigabytes — we expect strong demand given its premier brand recognition in cellular and fixed broadband services.
We believe Maxis is hoping to secure new mobile clients — younger ones via households currently subscribing to its fixed broadband service — and retain them by providing best-of-class connectivity and customer experiences. Upon subscription, Maxis evidently expects “inertia” or customers’ reluctance in switching to other providers to ensure a strong retention rate.
Based on Maxis’ home fibre customer base of 226,000 as at Dec 31, 2018, we estimate a 50% success rate in securing three new mobile customers at RM43 per line for each home fibre household could translate into Maxis’ FY19F revenue rising 1%. Assuming a net margin of 50% versus the group’s current all-in average of 20%, we estimate the incremental revenues could significantly raise Maxis’ FY19F earnings up to 3%. Based on a 50% retention rate on these new customers, we estimate FY20F revenue could increase 2% and earnings 5%.
Despite being positive on these fresh initiatives by Maxis, we are wary of new countermeasures by its peers that may offer similar plans to their existing mobile customers and re-catalyse further competition in the mobile wars which had somewhat abated for half a year. Hence, we retained our forecasts for now.
Currently, Celcom does not have an unlimited data package, while unlimited data for Digi’s Infinite plan starts at RM100 per month for speeds up to 10 megabits per second and U Mobile’s prepaid plan starts at RM30 per month. With the upcoming first quarter of FY19 results likely to be weak due to the lingering impact from U Mobile’s revenue loss, we viewed the premium FY19F EV/Ebitda of 14 times versus its three-year average of 12 times as unjustified. — AmInvestment Bank, April 8