Maxis - Repositioning its FTTH product

1Q12 result is schedules to announce on 31 May. We expect that the group to report a flat 1Q12 result with a core  net profit of RM551m (-4.4% QoQ but +2.0% YoY), accounting for 21.8% and 22.6% of the consensus and our expectations. The group has repositioned its fibre-to-the-home (FTTH) packages  by providing only two high speed internet plans instead of four previously. Its latest cheapest FTTH plan of 10Mbps at RM118/month  is 46% lower than the prior package and undercuts Telekom  Malaysia’s (“TM”) Unifi 10Mbps plan price of RM199/month. However, we are of the view that the aggressive marketing campaign  launched by Maxis is more to create a product awareness of its FTTH product rather than to start a price war within the segment. We are keeping our MARKET PERFORM call and our FY12-FY14 earnings forecasts at this juncture pending the upcoming 1Q12 result. Our current target price for Maxis is RM5.80, based on a targeted FY12 EV/forward EBITDA of 10.7x (+1SD above the mean). 

Expecting a flat 1Q12 result. We expect Maxis to record a core net profit of RM551m, which would be -4.4% QoQ but +2.0% YoY due mainly to 1) margin pressure from its recently-launched prepaid package (Hotlink Bagus plan) which focuses on the IDD market, 2) a seasonally weaker quarter for revenue and 3) a lower effective tax rate of 23% vs. 27.4% in 1Q11. Our FY12 core net profit of RM2.4b is 3.5% below the consensus’ full year estimate. We also expect the group to declare 8.0 sen dividend in 1Q12, which would be in line with its historical trend. For the current full financial year, we expect Maxis to declare a total 40.0 sen in dividends, translating into an overall dividend yield of 6.6%.    

Reduced the number of FTTH package to two by providing 10Mbps and 30Mpbs plans instead of the earlier four different plans (4, 6, 10 and 30 Mbps) previously. Maxis’ lowest FTTH plan – at 10Mbps with a price of RM118/month is 46% lower than its prior plan of RM218/month, and undercuts TM’s 10Mbps plan at RM199/month. The plan, which is on offer for a limited promotion period only, provides an unlimited data usage instead of implementing the fair usage policy of 100GB. Its other features, such as free installation until 30 June 2012, 600 free minutes to Maxis mobile numbers, unlimited calls to Maxis fixed lines, 200 free IDD minutes and 150 free minutes on Maxis mobile number remain  unchanged. The group’s FTTH plan is currently available in Klang Valley and in selected areas in Penang, Johor Bahru, Ipoh and Melaka.    

To create product awareness rather than a price war.  While this latest move by Maxis is a negative surprise for Telekom Malaysia’s (“TM”) Unifi product, we do not expect TM to response aggressively given its dominance of the FTTH market. TM’s Unifi growth momentum does not appear to be slowing with about 347k sign-ups as of 7 May, representing a strong take-up rate of 29% (1.2m premises signed up to date) as opposed to Maxis’ just a few thousand subscribers (based on our estimate). We believe the rationale for Maxis to reposition its FTTH products and slashing its subscriber fee is to create products awareness  rather than to start a price war. Thus, there is no urgent/risk for TM to lower its Unifi subscription fee in the near term unless there is a sharp drop in its net adds.  (Please refer overleaf for more detailed information on Maxis and Unifi’s FTTH products comparison)

Source: Kenanga