Wednesday, 2 January 2013

MAXIS (FV RM6.50 – NEUTRAL) Corporate News Flash: Taking The Lead on LTE


THE BUZZ   

Maxis  has  become  the  first  mobile  operator  in  Malaysia  to  introduce  Long  Term  Evolution (LTE)  service.  According  to  the  company,  the  speed  for  the  4G service is ‘up to 75Mbps’ although the typical average speed of 10-30Mbps is to be expected. For a start, the service is  only  limited  to  big  screen  devices  (wireless  broadband  access  on  USB  dongles)  and available  at  only  six  locations  in  the  Klang  Valley  –  Taman  Tun  Dr.  Ismail,  Cyberjaya, Damansara Utama, Desa Sri Hartamas, Bandar Puchong Jaya and Bandar Sunway.

 
 OUR TAKE 

3G  pricing  for  4G.  Maxis  is  offering  LTE  at  the  same  price  as  its  3G  wireless  broadband service,  which  it  recently  revamped.  However,  unlike  3G  plans  where  USB  modems  are bundled for free, subscribers are required to fork out RM400 for a LTE modem to enjoy the higher  speed.  Current  3G  data  subscribers  on  the  20GB,  28GB  and  48GB  plans  (RM88-RM158 per month) will be able toutilize the 4G service while subscribers on 3GB/8GB plans will  need  to  trade  up  to  a  higher  value  plan.  We  do  not  rule  out  similar  LTE  plans  being unveiled by Celcom and Digi in the coming months.

Better revenue opportunities under LTE. We view  Maxis’ strategy to maintain 3G pricing for LTE as a short-term move to create awareness of its new 4G service. The generous data caps  offered  would  make  it  difficult  for  the  telco  to  monetize  data.  In  Singapore,  Singtel, Starhub  and  M1  launched  4G/LTE  service  at  a  premium  to  3G  service  with  significantly reduced data caps (2-3GB from 12GB), allowing for more effective monetisation of data. We expect the telcos to eventually re-price their plans to maximize revenue potential from LTE. Unlike 3G, LTE is being marketed by operators as a premium network, with telcos vying for significant  average  revenue  per  user  (ARPU)  uplift  from  greater  data  usage  and  improved subscriber experience.

Work carved out for new CEO. Maxis had earlier announced that it has appointed Johann Dennelind  as  its  new  CEO  effective  1  July  to  replace  Sandip  Das,  who  will  remain  on  the board  as  a  non-executive  director.  We  view  the  appointment  positively  as  Johann  is  no stranger  to  the  telco  industry  in  Malaysia  and  would  be  bringing  with  him  a  wealth  of experience,  having  served  in  Telenor  and  Vodafone.  As  the  previous  CEO  of  Digi,  Johann overlooked the telco’s successful transformation into a 3G environment. Johann has his work carved  out  for  him  and  will  be  overlooking  Maxis’  transformation  into  an  integrated telecommunications player.

Maintain NEUTRAL. Maxis stays a NEUTRAL based on an FV of RM6.50 (WACC: 8%, TG: 1.5%),  with  share  price  support  coming  from  its  decent  dividend  yield  of  over  6%.  For exposure  to  the  sector,  we  prefer  Axiata  (NEUTRAL,  FV:  RM7.02)  and  TM  (BUY,  FV: RM6.20) given their more superior earnings growths.

Source: OSK

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