Intense competition to hit Maxis in second half of year: Analysts

PETALING JAYA: Analysts expect Maxis Bhd, whose net profit grew 6.59% to RM485 million in its second quarter ended June 30, 2015 (2Q15), to be affected by intense competition in the second half of the year (2H15).

MIDF Research, which maintained its “neutral” call on the stock with a lower target price of RM6.80 (RM7.12 previously), expects Maxis to report weaker earnings in 2H15 although its cumulative 1H15 earnings accounted for 45% and 48% of MIDF and consensus full-year earnings estimates respectively.

“Despite seeing some indications of an operational turnaround, we remain wary of the company’s full financial performance recovery due to the intensive competition in the industry. On a slightly positive note, the company’s strategy of adopting an accelerated capital expenditure (capex) plan in order to remain competitive could just prove to be beneficial,” it said in its research note yesterday.

“In addition, due to the change in dividend payout trend, Maxis’ attractiveness as a dividend play stock has waned. We are now expecting future dividend yields to drop to below 4%. As we do not see plausible rerating catalysts in the foreseeable period, we maintain our neutral recommendation on the stock.

“For investors seeking increased exposure in the local telecommunication sector, we are recommending Digi.com Bhd,” it added.

In 2Q15, Maxis saw its prepaid average revenue per user (Arpu) reduced to RM36 from RM40 previously due to the impact of the Goods and Services Tax (GST) freebies comprising voice and text. For postpaid, Arpu fell to RM97 from RM98, resulting in a 1% year-on-year decline in revenue to RM974 million from RM986 million in 2Q14.

“As we are expecting a weaker 2H15, we are revising our earnings estimates downwards for FY15 and FY16 by 7.8% and 4.6% respectively. We are assuming slower service revenue growth from both the prepaid and postpaid segments and lower profit margin assumption to better reflect the group’s results-to-date.

“Our assumptions are premised on intensifying competition among the telecommunication companies as well as cautious consumer sentiments post GST implementation,” said MIDF.

Meanwhile, Affin Hwang Capital has maintained its “hold” rating on Maxis with an unchanged target price of RM7.19.

“While are are positive on Maxis’ turnaround efforts, we believe earnings forecast re-ratings are unlikely due to the more competitive environment. Any disappointment in future dividends could trigger a de-rating of the stock, while earnings forecast re-ratings would surprise positively,” it said in its research note.

It maintained its 2015E dividend per share (DPS) of 26 sen, in anticipation of a special DPS in 4Q15. Maxis declared a second interim DPS of 5 sen (85% payout), bringing year-todate DPS to 10 sen (88% payout).

“Amid intense price competition, management said it was comfortable with its existing product offerings and intends to offer customers a superior network and better customer experience at its distribution network. Maxis already leads the industry with long-term evolution population coverage of 41% and targets 50% by yearend,” it said.

Affin Hwang said Maxis is likely to remain focused on growing postpaid revenue, which is still stagnant due to the impact of repricing pay-per-use data rates in 3Q14. However, there is still good traction from the MaxisONE Plan, which makes up 15% of postpaid base.