We attended Maxis’ lunch meeting yesterday hosted by new CEO, Morten Lundal together with its management team, with the key strategies highlighted on: (i) protecting its market share particularly in the prepaid front, (ii) other segments to compliment for the overall growth, (iv) reorganisation of its corporate structure. Meanwhile, management is guiding for a payout of 40.0sen dividend per share in 2014. We reckon this is achievable judging from our FY14E net debt/EBITDA assumption of 1.4x, which is below the maximum net debt/EBITDA gearing level of 2.0x by assuming the same quantum of dividend to be paid out. While we are sanguine on the group’s strategies, there are no changes to our FY13 and FY14 earnings forecasts for now as we understand that the transformation takes time to crystallise. Our target price of RM7.34 which is based on an unchanged targeted FY14 EV/forward EBITDA of 13.4x (+1.5x SD) remained unchanged. Maintain MARKET PERFORM.

To defend its turf in the prepaid market share. Management noted that its overall subscribers’ market share has been mainly dragged down by the shrinking prepaid subscription on the misconception of premium charges, overcharging issues as well as the aggressive moves by its competitors. Currently the management is aggressively fine-tuning the market perception by adjusting its pricing packages as well as improving its distribution channels and branding in hope to claw back market share. One of the major moves we noticed is the recent launched of #Hotlink – free basic internet package which only cost RM8.80. With this free basic internet package, we gather that the users can surf on applications such as Facebook, WhatsApp, Tweeter and Google smoothly on an unlimited data plan.

Other segments to compliment the overall growth. Management has also addressed the importance of enterprise segment as one of the contributors for the group’s growth. We understand that Maxis will leverage on its strength as the expert solution provider to provide basic mobile and cloud platforms to its customers. While no exact quantum of contribution was guided by the management, we gather that the meaningful contribution will start to bear fruition from 2015 onwards. Meanwhile on its home services segment, management indicated that the business is challenging due to the processing difficulty. Currently the segment is being reviewed together with its partners for better operations.

Higher investment in 2014 for better coverage and quality of data and voice. Management has earmarked a capex of RM1.1bn in FY14 or 29% higher than in FY13 (compared to RM850m in 2013) to widen its coverage as well as to improve its data (3G and 4G-LTE) and voice (2G) quality. Meanwhile, management is guiding dividend per share of 40.0sen in FY14 which is inline with our forecast. We reckon this is achievable judging from our FY14E net debt/EBITDA assumption of 1.4x, which is below the maximum net debt/EBITDA gearing level of 2.0x, assuming the same quantum of dividend to be paid out. Management however did not provide the dividend guidance for 2015 onwards.

Maintain NEUTRAL. In terms of corporate structure, the management has adopted several practices by trimming down bureaucracy in order to transform the group into a leaner structure. We understand that the structural changes will be concluded by the end of this month and we reckon that there would be no additional cost incurred for the transition going forward. All in all, while we are sanguine on the group’s strategies, there are no changes to our FY13 and FY14 earnings forecasts for now as we understand that the transformation takes time to crystallise. Our target price of RM7.34 which is based on an unchanged targeted FY14 EV/forward EBITDA of 13.4x (+1.5x SD) remained unchanged. Maintain MARKET PERFORM.

Source: Kenanga