Maxis was the biggest mover among the KLCI stocks, up 12 sen to RM6.37 and adding 1.53 points to the KLCI
KUALA LUMPUR: CIMB Equities Research has upgraded Maxis from Reduce to Hold with a 7% higher discounted cashflow based target price of RM6.30.
The research house said on Friday it expects the telco’s near-term results to be on par/better vs. peers. Its FY17F enterprise value/operating free cashflow (EV/OpFCF) of 15.9 times is in line with the ASEAN average, with dividend yield of 3.4%-4.0% per annum.
“Longer-term, we still see structural headwinds for Maxis as the market heads closer to network parity; and potential risk from non-renewal of the U Mobile RAN sharing deal, which may cut our fair value to RM5.80. Upside risk: better-than-expected sales growth,” it said.
CIMB Research said Maxis’ 1Q17 earnings before interest, tax and depreciation (EBITDA) declined by 5.5% on-quarter (-3.3% on-year) on lower revenue and margin.
Core net profit fell 6.1% on-quarter (+5.8% on-year), in line with lower EBITDA. However, results beat expectations, with 1Q17 core net profit coming in at 27%/27% (EBITDA: 26%/25%) of the research house’s and consensus FY17 forecasts.
CIMB Research said the key variances were higher-than-expected service revenue and EBITDA margin and lower-than-expected depreciation. As expected, a 5 sen interim dividend per share (DPS) was declared (1Q16: 5 sen).
Mobile service revenue (ex-U Mobile RAN sharing) fell by 2.2% on-quarter (-1.8% on-year), driven by on-quarter declines in both postpaid (-3.3% on-quarter) and prepaid (-1.3% on-quarter) revenue.
Postpaid revenue generating subs (RGS) continued to grow (+32k, +1.2% on-quarter) but ARPU fell 1.9% on-quarter, impacted by seasonally lower roaming and dilution from higher MaxisONE Share Line subs acquired.
Meanwhile, the drop in prepaid RGS accelerated to 2.4% on-quarter (-192,000) due to higher rotational churn while ARPU remained steady on-quarter.
EBITDA margin on service revenue eased 2.1% pts on-quarter (-2.0% pts on-year) to 52.5%, from a high base in 4Q16.
This was mainly driven by higher: a) staff cost (one-off incentives); b) network and spectrum costs and c) lower government grants and other income as a percentage of service revenue.
CIMB Research said in 1Q17, Maxis expanded its 4G coverage slightly by 1% pts on-quarter to 82% (4Q16: 81%, 1Q16: 74%), based on the -98dBm criteria.
“With its rivals striving to narrow the 4G network gap, we expect Maxis to sustain high capex of RM1.2bil in FY17F to stay ahead (DiGi/Celcom: RM800mil/RM1.3bil).
“We raise FY17-19F core EPS by 8.7%-12.6% (EBITDA: +5.1%-7.6%), mainly due to our revenue forecast revisions, post 1Q17 results.
“We now forecast Maxis’s core EPS to grow at a modest 3-year CAGR of 3.5% (EBITDA: +2.7%), driven by gradually rising revenue and EBITDA margin.
“We raise DPS slightly to 22 sen-26 sen for FY17-19F, but still lower than its FCF/share of 32 sen to 39 sen, as Maxis may want to pare down its gearing levels and also conserve some cash for a potential 700MHz reallocation in 2018,” said the research house.
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