Data galore: According to Maxis, the upgrade is based on the increasing data usage trend.
KUALA LUMPUR: CIMB Equities Research is maintaining its Hold call on Maxis, with an unchanged discounted cashflow-based target price of RM5.80.
It said on Friday it expects Maxis’s near-term results to be on par/better than its smaller local peers due to intense prepaid competition.
“Its FY18F EV/OpFCF (enterprise value/operating free cashflow) of 13.5 times is trading at a 11% discount to the Asean average, with decent FY17F-19F dividend yields of 4%-4.3%. Downside risk: structural headwinds as the market approaches network parity. Upside risk: better sales growth,” it said.
Commenting on Maxis’s Q2 FY17 results released on Thursday, CIMB Research said earnings before interest, tax, depreciation and amortisation (Ebitda) fell 1.7% quarter-on-quarter (+9.3% year-on-year) due to lower margins, on largely flat service revenue.
However, Core EPS fell a steeper 5.9% quarter-on-quarter (+12.8% year-on-year), on higher interest cost and effective tax rate.
“Results were largely in line, with 1H17 Ebitda/core EPS coming in at 48%/48% of our FY17F forecasts (consensus: 50%/53%). As expected, a 5 sen interim DPS was declared (2Q16: 5 sen),” it said.
Mobile service revenue fell marginally by 0.6% quarter-on-quarter (+2.5% year-on-year) in 2Q17, better than DiGi’s -1.3% quarter-on-quarter.
The decline in prepaid revenue (-2.1% quarter-on-quarter) was partly offset by higher postpaid revenue (+0.9% quarter-on-quarter, including U Mobile’s RAN share contribution).
Prepaid revenue generating subscribers (RGS) slid by a further 3.5% quarter-on-quarter (-272,000) due to intense competition and industry-wide SIM card consolidation, while average revenue per user (Arpu) held steady quarter-on-quarter.
Postpaid RGS sustained healthy growth of 41,000 (+1.5% quarter-on-quarter) and stable ARPU quarter-on-quarter.
Ebitda margin on service revenue eased 0.7 percentage points quarter-on-quarter (+2.9 percentage points year-on-year) to 52.0%, reflecting: a) some short-term investments to enhance efficiency and lower long-term structural costs, b) higher realised forex losses, and c) seasonally higher marketing cost.
Maxis said the costs related to its efficiency programme will start to normalise in 3Q17.
“Maxis’s 4G coverage (based on the -98dBm criteria) remained unchanged quarter-on-quarter at 82% in 2Q17 (2Q16: 81%).
“On the -110dBm criteria, its 4G coverage was at 89%, still ahead of DiGi’s 86%. Capex spend in 1H17 was RM373mil, or 24% lower year-on-year vs. 1H16’s RM488mil, even though data traffic has grown significantly. Despite this, management is maintaining its flat capex guidance for FY17F.
“We forecast Maxis’s core EPS to rise 6.4% in FY17F on higher service revenue and EBITDA margin.
“We then expect core EPS to fall 4.7%/ 6.8% in FY18F/19F, as we have assumed that: a) the 3G RAN sharing revenue from U Mobile will gradually taper off from mid-FY17F to end-FY18F and be nil from FY19F onwards; and b) 2G roaming revenue will persist till 2022 but be on the decline due to UM’s network coverage expansion and the transition from voice to data services,” it said.
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