Maxis - Earnings disppointment HOLD

- We maintain our HOLD call on Maxis and revise downwards our fair value to RM6.55/share (from RM7.40/share) following the release of its 3Q12 results.

- Maxis reported a net profit of RM442mil for 3Q12, which brings 9M12 earnings to RM1.5bil. This is below expectations, accounting for 63% of our estimate and 64% of consensus. We have cut our projections by 16%-18% over FY12F-14F for the weaker-than-expected earnings, in particular, to reflect lower margin assumptions. 

- Earnings fell 19% QoQ on the back of margin deterioration, while revenue remained flat (despite the inclusion  of a RM4mil revenue from U-Mobile RAN sharing in the quarter). 

- Margins continued to slip in 3Q12 – EBITDA margin fell to 47.6% from 49.9%-50.8% in the 1Q12-2Q12 period. While there was, to a certain extent, a negative impact from higher device sales in 3Q12 (lower margin of circa 5%), the group-wide margin deterioration (-1ppt QoQ ex-device sales) also reflects Maxis’ aggressive pricing strategies undertaken over the 1H12 period and higher customer acquisition cost in the postpaid segment and home fibre broadband segment. 

- Maxis has started to see a net growth in postpaid subscribers (+10K subs QoQ to 2.56mil subs), but voice minutes continue to deteriorate. Management expects improvements in subsequent quarters as re-pricing initiatives for the postpaid segment was only implemented late-3Q12. Prepaid mobile subs growth is gaining ground (+51K subs QoQ to 9.6mil) while MoU (minutes of usage) staged a minor increase of 2% QoQ. ARPU, however, remained flat.

- Meanwhile, fibre broadband is gaining traction with an addition of 10K subs in 3Q12 bringing total fibre subs to 19,400. Maxis has re-priced upwards its fibre package to RM148/month (10Mbps package) for maxis mobile subs and RM168/month (for non-Maxis mobile subs) from RM138/month previously. This is still at a discount to TM’s pricing of RM199/month for its 10Mbps Unifi package.

- Fy12F capex guidance has been lowered to RM830-840mil (from slightly below RM1bil) due to better pricing from vendors as well as increased infra sharing. 

- A gross dividend of 8sen/share was declared, bringing 9M12 dividends to 24 sen/share. At current price levels, dividend yield looks attractive at 6%. However, valuations at 12x FY13F EV/EBITDA looks stretched amid earnings risk from aggressive moves to compete for market share, which may trigger reactions from competitors.   

Source: AmeSecurities