We attended Maxis’ briefing session last Friday, where the group’s Chief Financial and Strategy Officer – Mr. Nasution Mohamed presented updates on the company to analysts. The group has reaffirmed its FY14 targets and provided some latest updates on each business segments, competition landscape, as well as its financial condition. Management also reiterated its RM0.40 DPS commitment in FY14, but future dividends will very much depend on its free-cash-flow position. Post briefing, we lowered our FY15 DPS estimate to RM0.30 from RM0.40 previously, after taking the group future FCF into the consideration. We have also fine-tuned our interest cost assumptions and lowered depreciation cost estimates, leading to our FY14-FY15E EBITDA estimate being lowered by 1%-2%. Valuation-wise, we have also lowered our target price to RM6.92 (from RM7.10 previously) after rolling over the valuation base year to FY15E but with a lower targeted EV/forward EBITDA of 12.8x, representing a 0.5x standard deviation above the mean of 3-year EV/forward EBITDA band. Our MARKET PERFORM call on Maxis remain unchanged.

Reaffirm FY14 targets. Maxis has reaffirmed its FY14 targets, where the group is aiming for: (i) flattish service revenue (total revenue minus hubbing and device sales) growth, (ii) RM4.5b absolute normalised EBITDA, a similar level recorded in FY13, (iii) RM1.1b capex, and (iv) RM0.40 DPS, subject to shareholders' approval. Having said that, the group also does not discount that its FY14 capex could surpass its guidance, should more investments are required. FY14 capex will be mainly focused in modernising its network to upgrade its major city site to single-RAN (Radio Access Network), which will allow the group’s network to support multiple mobile communications standards (i.e. 2G to 4G) on a single network.

Beyond FY14. The group has no intention to further leverage its balance sheet following the securement of RM2.45b Sukuk financing facility in mid-February. Any future borrowings will be mainly used for refinancing purpose rather than raising fresh capital. Maxis foresee that it will reach its optimal capital structure of between 1.8x-2.0x net debt to EBITDA by end-FY14. Dividend-wise, the group highlighted its dividend commitment will be very much depended on its free-cash-flow (FCF) position going forward.

Intensifying competition in the data segment. Of late, the country’s second tier mobile operators have started to provide free mobile internet (with limited promotional period) and slashed its data charges. Maxis view these pricing structures as not sustainable and believe competition is still at a rationale pace among the leading telcos. Meanwhile, the group intends to introduce new data plans to increase internet usage and delivering a worry-free experience, especially to the postpaid segment. On top of that, Maxis also plans to simplify its current prepaid and postpaid plans, with an aim to provide clearer suggestion to subscribers when selecting plans.

HOME segment continues to stay. Despite the commercial negotiation with Astro in its HOME segment is still being carried out, its operational experience with Telekom Malaysia’s installation team has improved significantly recently, according to the management. While the group will continue to retain this segment, Maxis does not expect the segment to contribute meaningfully at the group level going forward.

Source: Kenanga