Maxis announced its 3rd Quarter financial results on Wednesday. It now has 12.05 million subscribers.
- Maxis released its 9MFY16 results, with core net profit at RM1,420mn (+20.2% QoQ, -3.9% YoY). Numbers were within ours and consensus estimates at 79.3% and 74.8% respectively. An unchanged third interim dividend of 5.0sen (YTD: 15.0sen) was declared.
- Service revenue improved 2.8% QoQ, The prepaid segment generated a strong performance as ARPU increased 5.9% QoQ to RM36. Although there was a 188k QoQ decline in prepaid subscribers, the trend appears to be stabilising towards the end of the quarter. Postpaid subscribers recorded its first quarterly net add of 18k subscribers, after five quarters of decline. Postpaid ARPU, however, contracted 1.0% QoQ to RM100 on increased data allocation across the MaxisONE Plans. Margins were also lifted by the completion of major one-off projects (RM34mn) and lower realised forex losses.
- For the 9MFY16, service revenue fell 1.2% YoY to RM6.3bn. Prepaid revenue decreased 4.5% YoY, on account of a net decline of 842k prepaid subscribers. On a positive note, the decline was reported to be stabilizing towards the end of the quarter. Prepaid ARPU was slightly higher at RM36 (+2.9% YoY). On top of maintaining foreign worker contribution, it has managed to attract high mobile internet ARPU users through its Hotlink FAST plan. Prepaid data usage surged to 2.6GB/month, more than doubling from a year ago.
- Postpaid revenue stood fairly stable. A net decrease of 99k postpaid subscribers were offset by higher postpaid ARPU of RM100 (+3.1% YoY). The increase in postpaid ARPU is due to an increased number of MaxisONE Plan subscribers (55.7% of postpaid subscriber base). Average ARPU for MaxisONE Plan stood at RM129. However, within our expectations, this has been on a downtrend due to an increase in data allocation across MaxisONE Plan and introduction of MaxisONE Share.
- Costs were well controlled as normalised EBITDA margins were stable at 51.6% (+0.2pp). Sales & marketing and direct expenses decreased by 4.6% YoY and 0.5% YoY. Bad debts, however, increased 187.0% YoY to RM66mn.
- Adjusting for better than anticipated prepaid ARPU, we adjust our FY16 earnings upwards by 4.8% to RM1,873mn. However, our FY17 and FY18 numbers are left unchanged as we expect competitive pressures to persist post spectrum reallocation exercise and new competitor in webe.
- Guidance was unchanged from the previous quarter. Service revenue, absolute EBITDA and base capex is guided to be at similar levels to FY15. Reported numbers have thus far been relatively in line with management’s guidance. Nonetheless, we remain wary of competitive challenges with the introduction of webe and a more equitable spectrum portfolio. As the MaxisONE Plan continues to be priced at a premium, we do not discount the risk of potential subscriber loss and/or ARPU pressure from downtrading of plans.
- Following the spectrum allocation exercise, the group will have a reduced 2x10MHz and 2x20MHz of 900MHz and 1800MHz band spectrum. We expect this to result in increased competition and potentially higher capex. The spectrum will cost RM816.8mn in one-off fees, coupled with annual maintenance fee of RM70.3mn. This we estimate, will reduce its FY17 and FY18 earnings by 1.4% and 2.5%. Net debt/EBITDA is expected to touch its comfortable threshold of 2.0x. However, we deem this manageable as it can opt for staggered payments.
- We leave our TP for Maxis unchanged at RM5.80/share – based on a DCF valuation with WACC at 7.0% and long term growth rate of 1.0%. We remain negative on the stock as competitive pressures limit growth opportunities. Expecting flattish earnings coupled with its high Net debt/EBITDA, we also see limited upsides to dividends. SELL.
JF Apex Securities:
- 3Q16 normalised PAT was within expectation after rising 22% QoQ and 0.8% YoY to RM514m. Quarterly revenue increased 2.6% QoQ but declined 0.5% YoY to RM2.16bn on the back of higher ARPU despite less subscribers.
- Within forecast – Maxis’ performance was within expectation as nine months’ normalized net profit made up 76.8% of our full year forecast. Revenue also met our forecast after accounting for 72.8% of our FY16 estimate.
- Higher profit margin – 3Q16 normalised PAT margin was 3.8 percentage points higher at 23.8% (against 2Q16: 20%) while normalized EBIDTA margin increased 4.9 percentage points to 52.8%. Margins improved following operating cost control measures.
- Higher ARPU despite losing subscribers – Overall, blended ARPU in 3Q16 was higher at RM56 (vs RM54 in 2Q16 with a churn of 112k (vs 149k in 2Q16) as total subscribers declined to 10.9m from 11.0m in 2Q16.
- Higher prepaid revenue – Prepaid revenue was 6.6% QoQ higher but 4.8% YoY lower at RM1.02bn as ARPU increased to RM41 vs RM38 in 2Q16. Maxis lost 101k prepaid subscribers to 8.01m during the quarter (vs 88k churn in 2Q16).
- Postpaid stabilized – Postpaid revenue was 1.5% QoQ and 1.2% YoY lower at RM960m vs RM975m in 2Q16 as ARPU declined to RM100 from RM102 in 2Q16. During the quarter Maxis added 18k postpaid subscribers (vs -36k in 2Q16) to 2.68m.
- Forecast maintained – Our FY16 and FY17 estimates are maintained as we expect cost reduction measures to continue and subscribership to improve and spark revenue recovery in 2H16.
- Challenging outlook – Outlook on mobile telcos remains unexciting due to aggressive price competition that puts pressure on ARPU. Price war could be heightened by the entry of TM-backed Webe and YTL-backed YES.
- Maxis announced its third interim dividend of 5 sen per share. We forecast total dividend for the year would be 20 sen, translating into a yield of 3.3%.
- Maintain HOLD with an unchanged target price of RM6.28 based on DDM.