Maxis - Calling on Astro

While Maxis’ results were in line, voice resuscitation continued to be a challenge. The partnership with Astro will no doubt enrich its IPTV franchise and bundling proposition, pitting it against Unifi. We are leaving our forecast unchanged for now but raise our FV to RM6.50 (from RM6.00) after lowering our WACC to 8% from 8.5%, on the lower risk premium on the stock. NEUTRAL.

In line with estimates. Maxis’ 1HFY12 results made up 47%-49% of OSK’s and consensus estimates. To facilitate comparison, the group’s core earnings exclude the RM125m one-off asset write-off in 2Q12 and the RM26m last-mile broadband tax benefit in 1HFY12. It has declared an expected 8 sen/share second interim DPS, payable on 28 Sept. The main operational takeaways were: (i) the q-o-q contraction in voice revenue, (ii) EBITDA margin dilution from Euro 2012, laced with A&P costs, and (iii) the strong prepaid subs growth following the launch of new Hotlink plans in 2Q12.

Still losing its voice. The erosion in Maxis’ voice revenue is in contrast to the marginal q-o-q increases by Celcom and Digi in 1Q12 (from a low base in 1Q12), which point to further revenue market share erosion. We suspect this was due to the lag effect arising from Maxis’ ‘re-tariffing’ exercise and the loss of its share of postpaid revenue to its rivals. The group said the regularisation of its IDD tariffs has been very positive, with call usage rising seven- to eight-fold for certain destinations. It is also seeing an increase in its migrant market share.

9.2k new fiber customers. Maxis added 4.2k fiber customers in 2Q12 to 9.4k, a surprisingly soft increase considering that it went on the offensive in May with markedly lower price plans to stoke interest. TM’s earlier comment of relatively strong subscriber additions m-o-m in June-July possibly reflects Maxis’ weaker brand visibility and smaller distribution channel. Approximately 90% of Maxis’ fiber customers are on TM’s HSBB network.   

Capex. Maxis has reaffirmed its capex guidance of under RM1bn for FY12, which also builds in that for LTE. It expects to commence RAN sharing with U Mobile in Sept.  

Going with Astro. In an expected move, Maxis announced that it has inked a 10-year partnership with Astro, with the latter becoming the exclusive content partner for its fiber and mobile services. The details are sketchy as the deal will only be revealed later this week via an official release from Astro. We view the pact as positive toward strengthening Maxis’ quad play proposition and synergies to be extracted from the cross-selling and bundling opportunities across Astro’s 3m household base and Maxis’ 12m mobile subs base.

Source: OSK