MAXIS (6012) : Maxis Berhad - Hold your horses
Target RM6.50 (Stock Rating: REDUCE)
Maxis’s 3Q14 core net profit fell 4.0% qoq (-16.2% yoy). Nevertheless, this was ahead of expectations, with 9M14 core net profit at 81% of our FY14 estimate (consensus: 75%). EBITDA margin was slightly above, while depreciation was much lower than expected. As expected, an interim DPS of 8 sen (payout: 134%) was declared. We raise our FY14-16 EBITDA by 0.1-2.9% and core net profit by 9.0-12.2%. As such, we increase our DCF-based target price (WACC: 7.0%) by 4.8% to RM6.50. Despite stronger-than-expected results, we maintain Reduce as Maxis' transformation exercise will take time to bear fruit and earnings growth will remain modest in FY15-16. We also see a cut in DPS to 32-35 sen in FY15-16, once payout is based on FCF. We prefer DiGi.
Some traction in prepaid but postpaid still weak
Prepaid revenue grew 2.1% qoq (-6.0% yoy) for the second consecutive quarter, driven by good take-up of its #Hotlink plan, mobile internet passes and expanded distribution into underserved segments. While this is a positive sign, we believe the intense competition in the lower- to mid-end prepaid segment will make it difficult for Maxis to make significant revenue headway in the coming quarters. Postpaid revenue fell 2.4% qoq (-3.4% yoy) due to negative impact from repricing. Net add of 12k qoq was also its slowest since 3Q12.
Data offsets decline in SMS
Service revenue was flat qoq (-3.7% yoy). Mobile data revenue grew by a healthy 4.1% qoq (+16.4% yoy), in line with the rise in smartphone adoption among its customers to 54% in 3Q14 (2Q14: 48%). Nevertheless, this was offset by 10.2% qoq (-33.1% yoy) decline in SMS, while voice held steady qoq (-5.4% yoy). To drive data revenues, Maxis will focus on improving its network quality. As at end-3Q14, 73% of its network has been modernised, while it also leads in 4G with 21% population coverage.
Weaker margins qoq
After normalising for an RM44m one-off reversal in staff cost, EBITDA margin came in at 49.7%, down 1.4% pts qoq (-1.9% pts yoy). This was due to seasonally higher marketing expenses and normalisation of G&A cost. On our revised forecast, we expect margins to stay strong at 50.3% in FY14, and then improve to 51.4%/52.1% in FY15/16 due to the pass-through of GST to prepaid subscribers. We expect EBITDA to grow a modest 3.9-4.4% in FY15-16.
Source: CIMB Daybreak - 14 November 2014
Target RM6.50 (Stock Rating: REDUCE)
Maxis’s 3Q14 core net profit fell 4.0% qoq (-16.2% yoy). Nevertheless, this was ahead of expectations, with 9M14 core net profit at 81% of our FY14 estimate (consensus: 75%). EBITDA margin was slightly above, while depreciation was much lower than expected. As expected, an interim DPS of 8 sen (payout: 134%) was declared. We raise our FY14-16 EBITDA by 0.1-2.9% and core net profit by 9.0-12.2%. As such, we increase our DCF-based target price (WACC: 7.0%) by 4.8% to RM6.50. Despite stronger-than-expected results, we maintain Reduce as Maxis' transformation exercise will take time to bear fruit and earnings growth will remain modest in FY15-16. We also see a cut in DPS to 32-35 sen in FY15-16, once payout is based on FCF. We prefer DiGi.
Some traction in prepaid but postpaid still weak
Prepaid revenue grew 2.1% qoq (-6.0% yoy) for the second consecutive quarter, driven by good take-up of its #Hotlink plan, mobile internet passes and expanded distribution into underserved segments. While this is a positive sign, we believe the intense competition in the lower- to mid-end prepaid segment will make it difficult for Maxis to make significant revenue headway in the coming quarters. Postpaid revenue fell 2.4% qoq (-3.4% yoy) due to negative impact from repricing. Net add of 12k qoq was also its slowest since 3Q12.
Data offsets decline in SMS
Service revenue was flat qoq (-3.7% yoy). Mobile data revenue grew by a healthy 4.1% qoq (+16.4% yoy), in line with the rise in smartphone adoption among its customers to 54% in 3Q14 (2Q14: 48%). Nevertheless, this was offset by 10.2% qoq (-33.1% yoy) decline in SMS, while voice held steady qoq (-5.4% yoy). To drive data revenues, Maxis will focus on improving its network quality. As at end-3Q14, 73% of its network has been modernised, while it also leads in 4G with 21% population coverage.
Weaker margins qoq
After normalising for an RM44m one-off reversal in staff cost, EBITDA margin came in at 49.7%, down 1.4% pts qoq (-1.9% pts yoy). This was due to seasonally higher marketing expenses and normalisation of G&A cost. On our revised forecast, we expect margins to stay strong at 50.3% in FY14, and then improve to 51.4%/52.1% in FY15/16 due to the pass-through of GST to prepaid subscribers. We expect EBITDA to grow a modest 3.9-4.4% in FY15-16.
Source: CIMB Daybreak - 14 November 2014
