Maxis affected by U Mobile, Home Fibre repricing and declining revenue
Maxis Bhd’s (Maxis) earnings have been affected by the diminishing income from U Mobile Sdn Bhd (U Mobile), the group’s Home Fibre repricing and declining prepaid service revenue.
For the second quarter ended June 30, 2019 (2Q19), Maxis revealed in its media release that the group’s normalised profit after tax amounted to RM391 million, down 3.2 per cent from RM404 million in 1Q19.
“We view that the diminishing income from U Mobile has greatly affected the group’s profit margin and, subsequently, earnings,” the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said.
“This is further impacted by the repricing of Home Fibre as well as declining prepaid service revenue.
“To regain the loss in revenue, the group is repositioning itself to become a converged communications and digital services company.”
MIDF Research noted that this would include aggressively growing the enterprise business segment.
However, the research arm viewed that there are gestation period before it could substitute the loss of income from U Mobile.
“Coupled with competition from its peers, we do not expect the group to be able to offset the loss of contribution from U Mobile organically in the near term.
“Meanwhile, we expect the Maxis’ dividend yield to remain below four per cent to focus on executing its new strategy.”
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), while Maxis continues to keep a focused approach with the group’s capital expenditure (capex) plans and investments, it is sidelined by fundamentally better peers such as Digi. Com Bhd (Digi) with stronger margins, dividend yields and return on equity (ROE).
“Additionally, merger talks are driving investors’ interests towards other players,” Kenanga Research said.
For exposure, Affin Hwang Capital also preferred Digi for the possible value accretive merger with Celcom.
“Key risks to our negative view on Maxis include stronger than expected service revenue growth, lower than expected operating costs and better than expected investor receptions on Maxis’ new strategy,” the research firm said.