Highlights

Left breakfast meeting hosted by senior management on a positive note as it is refocused on core business under a leaner and flat structure.

Dividend: FY14 to maintain 40 sen per share (RM3.0bn) distribution yielding 5.5%, still the highest amongst peers. However, FY15’s may be reviewed based on performance.

More axed: delayering exercise continued in 4Q13 with the focus in middle-management leading to 40% reduction in headcounts. Based on our estimation, similar quantum of provision as in 3Q13 (RM102m) may be provided for in 4Q13 with the assumption of 300 layoffs. This will bring Maxis’ total workforce down to 2,700, comparable to the widely-admired DiGi in terms of efficiency.

Prepaid: lose market share mainly due to bill shocks, higher off-net call tariff, weakness in distribution (dealers and outlets) and the premium branding has caused the perception of being expensive. Prepared to retaliate by overcoming these flaws and regain market share.

Postpaid: stagnant due to low attrition as well as flat growth. See more data monetization opportunities through innovative and tiered pricing schemes.

Enterprise: especially managed services for corporates, will be an important growth driver. Plan to reposition itself and establish the necessary foundations in FY14 and go aggressive in FY15 -16.

Home fibre: operationally and financially challenging. In the midst of reevaluation its roadmap.

SMS: will continue to be a drag. Management is not surprise and is an inevitable trend. However, will mitigate the contraction through data pricing to offset the gap.

Guidance: (1) mild positive growth, (2) EBITDA margin slightly lower than FY13 due to higher marketing expenses, (3) CAPEX at RM1.1bn.

Catalysts

Higher smartphone penetration boosting data ARPU, synergistic product bundling with Astro, network infrastructure outsourcing and workforce rationalization.

Stronger than expected home fibre internet take up rate.

Risks

Government, regulatory, industry and execution risks.

Forecasts

Maintained.

Rating

HOLD, TP: RM7.29

Positives - New business potential in converged services, strong postpaid ARPUs (still the highest in the industry) and smartphone penetration.

Negatives - Initially low margin fibre services would depress profitability, weak ARPUs.

Valuation

Reiterate HOLD call based on unchanged DDM-derived TP of RM7.29 using WACC of 6.3% and TG of 1%.

We continue to like Maxis for its long term prospect under new leadership. We believe the market will continue to favor the stocks as our investment thesis of improving prospects and leaner structure under new leadership is gaining traction among investors. However, current price is already reflective.

Source: Hong Leong Investment Bank Research- 6 Dec 2013