Non-mobile service focus seen for Maxis

Maintain neutral with a higher target price (TP) of RM5.96: While Maxis Bhd is still on the lookout for a new chief executive officer, the company has hired a new management group to ensure that it is business as usual. This includes Gokhan Ogut (chief operating officer [COO]), Wayne Treeby (chief financial officer), Paul McManus (head of enterprise business) and Rob Sewell (head of strategy) who were previously attached with well-known telecommunications companies, such as Vodafone and Telstra.

As at the first half of 2018, mobile service revenue formed 92.5% of total service revenue, while the remainder consisted of enterprise fixed (3.5%) and home fibre (3.9%). We gather that to create a more balanced mixture of service revenue, Maxis is looking at driving revenue growth for both the enterprise and home fibre segments. This would also help to partially allay concern about the competitive mobile segment.

Recently, Maxis has introduced new fibre broadband plans: 30Mbps for RM89 per month and 100Mbps for RM129 per month for home users. These translate into a price reduction of between 36% and 65% compared with previous similar plans. We gather that Maxis is actively talking to other fibre network providers, such as TIME dotCom Bhd and Tenaga Nasional Bhd, to further increase its coverage area across Malaysia. Note that the latter is looking at connecting underserved areas that are not covered by existing fibre broadband providers.

On the enterprise front, the business broadband plans are competitively priced at RM10 per month higher for both the 30Mbps and 100Mbps plans compared with the home plan. Maxis will be leveraging on improved connectivity to roll out business solution services, particularly for small and medium entreprises (SMEs) and micro SMEs. This could revolve around the application of Narrowband-Internet of Things technology to offer new smart digital solutions to businesses and the public sector.

We have fine-tuned our financial year 2018 (FY18) earnings estimate lower by 0.6% as we input a slightly more conservative earnings before interest, taxes, depreciation and amortisation (Ebitda) margin to account for higher staff and resource and marketing expenses. Meanwhile, we have revised upwards our FY19 earnings estimate by 3.4% as we factored in higher earnings contributions from the home fibre and enterprise segments.

Subsequent to our FY19 earnings adjustment, we have raised our TP to RM5.96 (previously RM5.80). This is premised on our target price-earnings ratio (PER) of 23 times, which is the average low PER of the group for the past four years, against our revised FY19 earnings per share of 25.9 sen.

Maxis showed sequential improvement in its second quarter of FY18 results. This was supported by a recovery in mobile revenue and better home fibre service revenue as well as effective cost management in areas of procurement, capital expenditure and operating expenditure spending. Note that the recently appointed COO, Ogut, has initiated a company-wide effort to embed cost optimisation throughout the company, so that it becomes a conscious effort by all employees. This is expected to defend Maxis’ Ebitda margin at around 50% of service revenue. However, we still expect FY18 earnings to trend lower due to progressive termination of 3G network services with U Mobile.

Moving forward, the company’s emphasis on growing the home fibre and enterprise segments could help to partially make up for the competitive mobile segment. Meanwhile, we expect Maxis’ dividend yield to remain below 4% to meet its capital commitment. Given the lack of significant positive rerating catalysts, we are keeping our “neutral” recommendation on Maxis at this juncture. — MIDF Research, Sept 21

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