Maxis - Earnings in-line HOLD

- We maintain our HOLD call on Maxis with an unchanged DCF-derived fair value of RM6.55/share following the release of its 4Q12 results last night.

- Maxis reported a core net profit of RM511mil for 4Q12 (normalised for a RM133mil one-off write-off of set-top boxes) bringing FY12 core earnings to RM2bil. This is within expectations, accounting for 101% of our estimate, but slightly ahead of consensus (108% of consensus estimates).

- EBITDA margins slipped further (-1.4ppts QoQ), despite a 4% QoQ increase in revenue given Maxis’ aggressive pricing adjustments. While ARPU was stable QoQ, increased usage as a result of lower pricing drove up direct costs.

- Additionally. Maxis has been aggressive in pushing out smart devices to the market – dragging margins further. The move is part of Maxis’ strategy to “seed” the market with devices and by doing that, locking-in a subs base (as 80%-85% of device sales are on contracts) for future growth in data.

- Capex is expected be just under RM1bil in FY13 (vs.RM805mil in FY12), where a third is allocated for upgrades for IT infra (e.g. billing system, CRM, customer analytics) and the rest for LTE rollout, progressive network modernisation based on LTE rollout rate and backhaul upgrades.

- Meanwhile, FY13F revenue is expected to grow in the midsingle digit range, which is in-line with guidance by other players, i.e. Celcom and DiGi. EBITDA margins are expected to stabilise at the 48%-48.5% level – margin deterioration from price initiatives is expected to be offset by cost efficiencies.

- Revenue drivers for FY13F:- (1) Improved voice market share from gradual increase in subs base as a result of price initiatives; (2) Continued increase in data revenues; (3) Full-year contribution from U-Mobile RAN share (RM31mil in 4Q12); (4) Home broadband gaining traction from introduction of Astro IPTV bundling at end-1Q13.

- We leave our projections unchanged at this juncture – our forecasts are currently in-line with management’s guidance, i.e. 5% revenue growth (FY13F), though our EBITDA margin assumption is on the high side of guidance at 48.5%.

- Management is guiding for a sustained dividend payout of RM3bil (40sen/share) going forward via a mix of cash flow and capital management initiative. Attractive yields of 6.3% should cushion any price downside, despite Maxis’ aggressive stance on pricing and steeper valuation (15% premium on EV/EBITDA basis) relative to local celco peers.

Source: AmeSecurities