Maxis perceives 2015 as year of delivery, says research firm
KUCHING: Affin Hwang Investment Bank Bhd’s research division (AffinHwang Research) believes that 2015 will be a year of delivery for Maxis Bhd (Maxis) as the group kicks off its transformational plans.
AffinHwang Research recently met up with management to discuss several pertinent issues surrounding Maxis, including dividends (given the sharp deviation on consensus forecast for 2015 estimates (2015E)), growth prospects and traction from the group’s transformational changes and competition, especially from new players.
According to the research arm, growth has been an important agenda for Maxis after having seen a sharp contraction in both revenue and earnings in 2014.
It noted that this was, however, partially attributed to Maxis’ transformational strategy involving new products, which ultimately led to an immediate elimination of non-sustainable future revenues, such as high roaming charges and exorbitant data charges.
AffinHwang Research believes that Maxis is on the right track as customer experience and satisfaction is once again prioritised with a goal of eliminating “bill shock”.
“Importantly, this could possibly address the issue of Maxis’ declining postpaid average revenue per users (ARPUs) and likewise grow its prepaid segment,” the research arm said.
It added that while take up of Maxis’ postpaid MaxisOne plan is still relatively small at 250,000 subs (as at end 2014 or accounting for less than eight per cent of the group’s postpaid sub base), this product has had a positive impact of lifting ARPU as most of these subs are on the RM128 price plans (versus the RM78 lite version), and paying for additional data on top of that.
AffinHwang Research further noted that a successful migration of Maxis’ existing postpaid customers to this new plan could lift ARPU and hence earnings, although the small take up so far suggests some stickiness towards existing plans or the group’s subscribers’ unwillingness to commit to a higher monthly plan.
Nevertheless, based on the research arm’s estimates, every RM1 increase in postpaid ARPU could lead to earnings per share (EPS) enhancement of +0.3 per cent and a RM0.04 increase to its 10-year discounted cash flow- derived (DCF-derived) target price.
Likewise, it said that Maxis’s prepaid product has also been revamped, and now comes inclusive of free basic internet in addition to free social media access ( over- the- top chat applications and Facebook) at 64 kilobits per second (kbps).
The research arm believes that this product is potentially gaining traction in the youth segment given the lure of free social media access, which also explains the sharp rise in Maxis’ prepaid sub base in the recent quarter with 543,000 in the fourth quarter of 2014 (4Q14) versus 39,000 in 3Q14.
Operations aside, AffinHwang Research believes the biggest concern surrounding Maxis at this point is the dividend quantum for 2015.
The research arm noted that management has guided that they will no longer borrow to fund the dividend payment and thus the consistent 40 sen per share annual payout over 2010-2014 is unlikely to be repeated.
It further noted that this has created some uncertainty and judging by consensus 2015E dividend per share (DPS) expectations of 19-40 sen, there may be some disappointment in store.
“We lower our 2015-17E DPS forecast to 26-28 sen from 32 sen, taking into account its free cash flow (FCF) and payout ratio,” the research arm said.
At a DPS of 26 sen, it added that yields of four per cent are also less compelling and at the lower end of the sector average.
On competition in the market place, AffinHwang Research concurs with management that it will likely remain rational despite growing threats from the smaller newcomers, which include U Mobile Sdn Bhd (U-Mobile) and upcoming wireless service provider, Packet One Networks (Malaysia) Sdn Bhd (P1).
While the market anticipates the launch of P1’s service, the research arm believes that the company’s impact will be rather muted considering the lack of network infrastructure to have extensive nationwide coverage and, hence, to have a meaningful rollout.
It noted that P1 has LTE spectrum on the 2.3 Gigahertz (GHz) and 2.6GHz bands and TM has the low-band spectrum of 450 Megahertz (MHz) and 850MHz.
“While a domestic roaming agreement may materialize, lessons learnt from the Maxis-U Mobile collaboration may deter any incumbent operator from being too aggressive in such arrangements,” it added.
On the whole, AffinHwang Research noted that the market seems to be paying little attention to Maxis’ dividend issue, considering Maxis’ share-price appreciation of 4.4 per cent year to date.