PublicInvest Research

MAXIS - Dividend-Yield Play

PublicInvest
Publish date: Mon, 24 Sep 2012, 10:56 AM
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Following Message

We are initiating coverage on Maxis with a NEUTRAL rating. Our 12-month target price of RM7.26 based on DCF valuations (WACC: 5.6%, terminal growth rate: 1.5%) suggest limited upside from current levels, but downside risks will be cushioned by its consistent 5.8% dividend yield (40sen per share) however.

 
  • Background. Maxis is the largest mobile operator in Malaysia with a total subscriber base of 12.6m, accounting for 31% of the total. The Maxis brand, which was founded by Ananda Krishnan in 1995, has a leading position in Malaysia‟s prepaid and postpaid businesses, with a market share of 30.6% and 35.3% respectively. The group‟s ambition of having multiple delivery platforms fibre, cellular and wireless to deliver content on a variety of channels, are coming into realization after recently teaming up with Telekom Malaysia (TM), U Mobile, Redtone and its sister company, Astro in respective assignments.
  • Upbeat growth on non-voice segment. Management aims to see 50% of revenue coming from the non-voice segment, this year or next. YTD, it accounts for 45.3% of mobile revenue compared to 42.4% last year. Given the huge demand for mobile data services and low level of broadband penetration rate at only 19.6%, potential room for growth in the mobile internet and wireless broadband businesses is tremendous.
  • Valuations fully achieved. Nevertheless, we think that its valuations have been fully realized given its unattractive overall earnings growth prospects. Though we acknowledge progressive growth from the non-voice segment, we think Maxis‟ strategy of offering more competitive voice packages for the sake of reclaiming its subscriber losses will eventually depress its margins. We expect that its voice segment contribution will likely remain stagnant for this year and next.
  • Key re-rating catalysts. i) New earnings contribution from its upcoming tripleplay services, ii) better-than-expected growth in voice subscibers and iii) improved cost savings via collaboration with several industry players.

 

 

Highlights

Partnering with sister company. In early-Sept, the group announced that it had inked an exclusive 10-year strategic partnership with Astro to spearhead its IPTV service. Maxis will be the fibre broadband service provider to expand Astro‟s B yond service footprint. Meanwhile, Astro will be the IPTV service provider for all Maxis‟ fixed and wireless platform. As at end-of June, the mobile operator has more than 57,000 Maxis Home customers, including 9,352 Home Fibre Internet and more than 27,000 Home Wireless Internet subscribers. The bundled IPTV and broadband packages are expected to be launched by year-end.
 
No dividend surprise expected. Despite widespread speculation about a special dividend payout when it unveiled plans to issue Islamic medium term notes totaling RM2.45bn in Feb, the company has since indicated that annual dividend will likely remain at 40sen per share for the foreseeable future. Still, this level translates into a generous 118.5% of the company‟s net profit of RM2.5bn in FY11. This also suggests that Maxis‟ gearing will continue to rise after taking into account estimated capex of roughly RM1bn per annum.
 
Rolling out home fibre broadband. Maxis is also diversifying into the fixed line high speed broadband (HSBB) home market segment to broaden its addressable market. The company signed a 10-year agreement for wholesale HSBB services from TM that would give it access to 1.3m households by end- 2012. In addition, its own fibre network covering, primarily, multi-dwelling units is estimated to service another 100,000 or so households. A full suite of services- including voice, HSBB and Internet protocol TV (IPTV) will be targeted for launch by end-2012. With the recent move by Maxis to undercut TM‟s HSBB package by offering RM138/mth for its home fibre internet product, we are likely to see intense competition between Maxis and TM in the triple play service after inclusion of the IPTV feature in the package by yearend.
 
Defending market share at expense of margins. Maxis has been seeing a decline in subscriber numbers in both the postpaid and wireless broadband segments, down 0.5% and 11.9% since 4QFY11. To defend its eroding market share, the group has already launched a loyalty programme called Maxis One Club that offers special discounts for mobile services and rewards as well as “peace of mind” roaming plans that offer more competitive rate for IDD calls. It intends to offer more competitive bundle-based and tariff plans in 3Q12. Margins, however, will remain under pressure, at least this year and into the next.
 
Ready for Long-Term Evolution (LTE) platform. Management is looking to launch its 4G LTE early next year in parts of Klang Valley, pending spectrum allocation by the government. It also claims that the next generation mobile broadband technology will be able to deliver the fastest mobile data connectivity not just in Malaysia but in the region with transmission rates of up to 150Mbps. As large telcos require more than 20Mhz bandwidth (Celcom, DiGi, Maxis, U Mobile, P1, REDtone and YTL Communications were allotted 20MHz each) to support their long-term data growth, Maxis has tied up with Redtone in infrastructure and spectrum sharing. Both players will combine their LTE spectrum to allow Maxis to provide LTE services while Maxis will offer the latter wholesale telco services (2G, 3G and 4G).
 
Unexciting valuations. Maxis shares are trading at FY13 PE of 21.4x and EV/EBITDA of 12.1x - expensive relative to regional peers (average FY13 PE: 14.4x, average EV/EBITDA: 6.4x) and local telco players (average FY13 PE: 22.3x, average EV/EBITDA: 9.6x). In addition, its FY13 PE and FY13 EV/EBITDA are at the steep premium to its 3-year average of 18.4x and 12.1x respectively, which are slightly above +2 standard deviation. Nevertheless, its potential dividend yield of 5.8% is well above the regional and local average of 4.2% and 4.6% respectively, based on Bloomberg consensus forecast, which should underpin downside risks.
 

 

Source: PublicInvest Research - 24 Sep 2012

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Discussions
Be the first to like this. Showing 1 of 1 comments

Raymond Tiruchelvam

when will maxis go ex-dividend?

2012-09-25 00:55

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