Maxis stays steady despite worries over ARPU dilution

Kenanga Research sees the telco’s move to provide lower entry postpaid plans and “unlimited” prepaid plans as “addressing the possible changes in consumer appetite for more value propositions”.

PETALING JAYA: Despite concerns of average revenue per unit (ARPU) dilution, Maxis Bhd has stayed unscathed thanks to its move to provide converged solutions and maintain network quality.

Kenanga Research sees the telco’s move to provide lower entry postpaid plans and “unlimited” prepaid plans as “addressing the possible changes in consumer appetite for more value propositions”.

The research unit in its latest report said Maxis’ management believes the erosion of shareholder’s value would not be a concern as this strategy could be a means to reach out to untapped markets.

On the flip side, the management is optimistic that its enterprise segment should yield promising returns by the coming year, backed by sticky value propositions and new enterprise products.

For now, Kenanga Research noted that the segment only contributes 6% of group service revenue, but this has almost doubled since FY19.

The group’s newly released third quarter (3Q) results for FY20 was within expectations, said the research unit.

However, the four sen interim dividend declared is deemed to have missed the research unit’s estimate for FY20 total payment of 18 sen “as we believe a dividend windfall of six sen for 4QFY20 is unlikely.”

It noted that Maxis group will likely continue to be reactive with new products to capture market share.

Post-results, Kenanga Research will leave its FY20/FY21 estimated assumptions relatively unchanged, but has trimmed its full-year dividend forecasts to 16 sen/18 sen (from 18 sen/19 sen) in anticipation of tighter cash flows ahead.

The research house has a market perform call on Maxis with a target price of RM4.90.

Meanwhile, RHB Research has a “neutral” call on Maxis and revised its target price lower to RM5.20 from RM5.60 per share previously.

It noted that the 3QFY20 results were broadly in line, with a recovery in mobile service revenue (MSR) following the low ebb in 2QFY20.

Despite the good progress of its Fuel4Growth (F4G) productivity programme and enterprise traction, RHB Research expects Maxis near-term revenue/earnings to face challenges from tight competition and the weak macroeconomic outlook.

“We cut our estimated FY20-22 core earnings by 4%-7%, after tempering revenue growth/EBITDA projections, ” added the research unit.

Maxis’ MSR (excluding wholesale) ticked up 1% quarter-on-quarter (q-o-q) as prepaid revenue recovered (4.5%) with retail channels resuming post the 2Q20 lockdown, along with the discontinuation of the industry’s 1GB daily data offer.

Growth was, however, behind Bhd which is up at 4.3% in MSR and rose 7% in prepaid. The prepaid ARPU (revenue-generating base) was stable at RM40, aided by new/value- accretive unlimited plans introduced in early June.

RHB Research also noted that the group’s operating expenditure (opex) savings was slightly ahead of target.

“Maxis recognised RM350mil of opex savings in 3QFY20 – a target it set for the full year, ” said the research unit.

Over RM700mil savings have been realised, since the introduction of the F4G cost-out/productivity programme in over three years.

The key areas are digitalisation, process simplification/automation, and mobile/self-care application.

Meanwhile, Maxis’ home fibre subs additions slowed to 11,000 in 3QFY20, from 18,000/21,000 in 2QFY20/1QFY20.

“While this should be viewed in the context of the 12% increase in fixed wireless LTE customers (solution offered during the movement control order), Maxis likely saw greater fixed broadband competition from new access seekers and Telekom Malaysia Bhd, which launched new bundled packages during the quarter, ” it added.

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