(Feb 18, RM5.55)
Maintain hold with a target price (TP) of RM5.15: Excluding one-off RM250 million and other EIs, Maxis Bhd’s fourth quarter of financial year 2018 (4QFY18) results’ core earnings fell -1.7% quarter-on-quarter and -2.2% year-on-year (y-o-y). The increase in service revenues could not mitigate higher direct costs charged (network, traffic, and operations and maintenance charges), resulting in lower core earnings before interest, taxes, depreciation and amortisation (Ebitda) in 4QFY18.
Despite robust post-paid service revenue growth in 2018 (+5.1% y-o-y), overall service revenue fell -1.8% as prepaid service revenue weakened (-11.4% y-o-y). Prepaid subscribers continue to decline (-387,000 to 6.6 million) on migration into postpaid and increasing competition. Overall, FY18 core earnings met our consensus earnings estimates at 104% and 102%.
Management guided its 2019F (forecast) would deliver mid-single-digit Ebitda drop following an end to a major network sharing arrangement, regulatory policies and fibrenation marketing cost. We lower our earnings estimates by -1.4%/-3.8% for 2019F/2020F.
It unveiled the MAX plan which underpins its strategy to become a convergence player; an additional RM1 billion capital expenditure (capex) over three years on top of recurring RM1 billion annual base capex. We believe its existing RM10 billion sukuk programme could be one of the options for fundraising if required. Current net debt-Ebitda ratio is 1.86 times. This allows Maxis to sustain its 20 sen annual DPS while pursuing its growth strategy.
While the pursuit for convergence service provides growth opportunity from untapped markets, we are concerned over the intensified capex needed. Within the fixed broadband space, we believe that competition has heated up drastically while regulatory risk is inherent amid some confusion over the mandatory standard on access pricing or MSAP, for example. — BIMB Securities Research, Feb 18