Maxis likely to see lower earnings in FY18: Analysts

PETALING JAYA: Maxis Bhd is expected to see lower earnings in the financial year ended 2018 (FY18) due to intense competition in the prepaid market as well as progressive termination of 3G network services with U Mobile which will negatively impact the group’s postpaid service revenue, said analysts.

In a research report last Friday, PublicInvest Research said it forecasts 4.4% decline in the group’s FY18 net profit due to the impact of U Mobile’s termination of its 3G network sharing agreement with Maxis.

“We are also forecasting prepaid subscriber base to decline albeit at a slower rate compared to FY17,” it added.

Maxis’ prepaid service revenue declined 11.1% to RM904 million in Q4 FY17 dragged by the lower subscription base which was impacted by the continued SIM consolidation, migration to postpaid and intense competition.

Nevertheless, the research house said it revised its FY18-FY19 earnings estimates higher by about 8% to factor in a more resilient average revenue per user (ARPU) for the postpaid segment as well as lower direct and marketing costs.

In Q4 FY17, the group’s postpaid service revenue grew 6.5% to RM1.08 billion driven by the enhanced device ownership propositions which continued to register high ARPU.

In a separate note, MIDF Research said it also revised its FY18 earnings estimate slightly higher by 2.2% as it fine-tune its profit margin assumption upwards to better reflect the group’s financial performance thus far.

“Nonetheless, due to intense competition, the prepaid subscriber base continues to dwindle. We view that it would be difficult for Maxis to grow the prepaid revenue as we expect Webe to disrupt the prepaid market. Moreover, the group’s postpaid service revenue for FY18 will also be negatively impacted by the progressive termination of 3G network services with U Mobile,” MIDF Research said.

For FY17, Maxis’ net profit increased 8.9% to RM2.19 billion, the highest in the past four years, while revenue improved by 1%. For Q4 FY17, its net profit expanded 10.7% to RM559 million buoyed by lower operating and finance costs.

Analysts noted that the telco operator’s FY17 results was within the market expectations, accounting for 101.5% of the street’s full year estimates respectively.

Post the earnings revision, MIDF Research said it revised its target price to RM5.93 from RM5.80 previously premised on pegging target PER of 23 times, and keeping its “neutral” recommendation on the group unchanged.

Meanwhile, Kenanga Research reiterated its “market perform” call on the group with unchanged discounted cash flow-driven target price at RM6.10.

“We have reduced our FY18 profit after tax, amortisation and minority interest (patami) by 1.5% after some fine-tuning. Meanwhile, we also take this opportunity to introduce our FY19 numbers, where we expect the group’s net profit to stay flat despite a 2.4% growth in turnover,” it added.