Monday 27 February 2012

MAXIS (FV RM5.50 - NEUTRAL) FY11 Results Review: Hallmark Margins Under Threat


Maxis’ FY11 results were in line with our/street expectations. The key highlights were (i) the guidance of weaker EBITDA margin for 2012 as it intends to be more aggressive in the market and (ii) management has no plans for stronger dividends beyond the quarterly payout quantum, which is disappointing as the group recently geared up its balance sheet and is expected to see peaking capex. Following the results, our FY12/13 forecast has been adjusted by  -2.4% to 0.8%. We maintain our NEUTRAL call with its share price supported by the 7% dividend yield. Our FV is raised to RM5.50 (WACC: 9%, TG:1.5%) from RM5.10 after rolling over to FY13. 

In line. At 96% and our/consensus core earnings (excluding the broadband tax incentive of RM322m), Maxis FY11 results were in line. As expected, the higher opex from the rollout of its Home service contributed to the 1.3%-pts erosion in EBITDA margin q-o-q to 48.7% (FY11: 50.3%). Maxis’ mobile revenue grew a pedestrian 0.3% q-o-q, significantly below Celcom and Digi’s +2-4% as we estimate its voice revenue fell 2% qo-q. Maxis continued to see prepaid revenue erosion and has been slow to respond to competitor’s aggression on voice tariffs. Non-voice revenue remained the silver lining for the group, up an estimated 3% q-o-q (+10% y-o-y) thanks to robust growth in non-sms data revenue of 5% q-o-q (+18% y-o-y). We gather from management, that some 31% of its subs base are on smartphones, above the average for the industry of 27-28%.  

To go more aggressive. Maxis said it has been been avoiding the competitive pressure on pricing but now see this as inevitable to protect its share of the market. It plans to be more aggressive this year with margins expected to suffer in the medium-term. Management has reaffirmed the guidance of mid single digit growth for 2012.

Home service in full swing by mid-2012. Maxis said it is targeting subscribers ‘in the tens of thousands’ for its home service but did reveal the subscribers it now has. Its expects the service to go full swing by mid-2012 with more bundled offers including the introduction of mult-screen products. We continue to believe the delay in the rollout of its home service (18 months after TM’s Unifi) has cost the telco valuable subs given that most has been locked in by TM’s service which continued to enjoy strong demand. Its addressable market for the home service comprised 900k households (under TM’s HSBB) and about 100k households living in multi-dwelling units where its own fiber currently runs.

Capex peaking but no sign of special dividend. Maxis foresees capex to come down to RM600-700m in FY13 from under RM1bn in FY11 excluding investments in LTE. Disappointingly, there was no indication of potentially higher dividends even with the capex leveling off. The net DPS of 40sen/share for FY11 works out to a 119% payout.

Source: OSK188

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