Maxis is targeting to grow its enterprise business in the HOME segment, although the detailed roadmap is yet to be finalised. Its smartphone penetration rate is expected to continue growing amid increasing affordable devices introduced by various phone makers. With higher smartphone usage rate coupled with more worry-free as well as affordable entry level data plans, Maxis believe it could drive mobile Internet usage further. We expect the group’s data revenue to exceed its voice and SMS revenue by early FY17. There is no change in our earnings forecast post the company visit. We reiterate our MARKET PERFORM call on MAXIS with unchanged target price of RM6.87 based on targeted FY15 EV/EBITDA of 12.9x, representing a 0.5x standard deviation above the mean of 3-year EV/fwd EBITDA band.

Targeting Enterprise business in the HOME segment. Maxis plans to focus on providing pure fibre services (by riding Telekom Malaysia’s backhaul) to the enterprise segment while awaiting for the commercial negotiation with Astro to be finalized by year-end. Although the detailed strategy roadmap is yet to be ironed out, we understand that the group plans to tackle its 1m corporate customers and provides total customized solution services for both the fixed as well as mobile users (i.e. cloud computing, managed services capabilities and etc.).

Room for improvement in the smartphone penetration rate. The group’s blended smartphone penetration rate stood at 48% as at end-2Q14 vs. 43% in 1Q14. Its penetration rate in the prepaid segment, meanwhile, was merely 43% compared to 64% in the postpaid division, thus suggesting room for growth in the future underpinned by more affordable smartphones being introduced by phone makers. Maxis’ device sales will remain low (2Q14: RM5m) moving forward after it outsourced this operation to Brightstar.

Continue to spur data usage. Similar to other mobile incumbents, Maxis has introduced various entry level data plans as well as embarking on aggressive market campaigns to encourage smartphone users to switch on their data plan. By introducing more worry-free data packages, Maxis believe it could drive mobile Internet usage higher, where the group has merely recorded 64% in the prepaid and 60% in the postpaid segments as at end-2Q14. With these efforts, management expects data revenue to mitigate the deteriorating voice and SMS revenues in coming years. We expect the group’s data revenue to exceed its voice and SMS revenues by early FY17.

FY15 capex is expected to maintain at the RM1b mark. Although management has yet to finalise the capex plan for FY15, Maxis is targeting to spend a similar quantum as the current financial year. Key capex spend in FY15 will be continued focus on network modernization and coverage expansion while the balance or c.25% is expected to be allocated for IT as well as the billing system.

Transformation continues. Maxis is still sailing the transformation wave where the group is working to regain its leadership in the prepaid segment by repositioning and as re-pricing its products. This is to ensure its products remain attractive and more relevant to the youth and urban segments. Meanwhile, the group is also taking various approaches to reassess its sales and distribution network.

Source: Kenanga