We attended Maxis’ analysts’ briefing yesterday. The key highlights were its network strategies, financial and operational updates. Maxis aims to focus on its subscriber base and ARPU uplift to drive profitability in the remaining months this year. There is no change to our earnings forecasts post the company visit. Downgraded to UNDERPERFORM (due to the recent run-up but with less compiling dividend yield) with unchanged TP of RM5.85, based on targeted FY17E EV/forward EBITDA of 12.4x (representing an unchanged -1.5x SD below its four-year mean).

Network edge sustained. Maxis believe it will continue to uphold its network advantages post the spectrum allocation in view of: (i) its extensive network built under the low-frequency bands, (ii) better in-door coverage, (iii) lower network latency (which implied more responsive network), and (iv) capability to renovate and offer innovative services. While we concur with the management’s view over the immediate-to-mid-term, its network edge is likely to be blunted over the medium-to-long-term where Celcos’ performance will very much be dependent on the spectrum efficiency rather than the allocation itself. To recap, Maxis 900MHz spectrum allocation has been reduced to 2x10MHz (from 2x16MHz previously) under the recent spectrum reallocation exercise while its 1800MHz band lowered to 2x20MHz (from 2x25MHz previously) in tandem with other incumbents. The new frequency assignments are expected to be issued in August 2016 for full implementation by 1 July 2017. Maxis is deploying its 2G, 3G and 4G services under the 900MHz/1800MHz, 900MHz/2100MHz, and 1800MHz/2600MHz frequencies, respectively.

No imminent threat from Webe as Maxis believes the battle is likely to emerge on the medium-term if the former succeed in transitioning from fixed to mobile. While Telekom Malaysia’s Webe’s offering of an unlimited voice, SMS and data services for as low as RM79 per month, which appears attractive, Maxis believes the pricing is not the only key element to success, where extensive network coverage as well as seamless user experiences also play a corresponding vital role in the mobile space. Webe has launched its services officially last week but yet to make them available to the public. Webe’s initial rollout is still focused on its existing Unifi, Streamyx and P1 customers within its 4G footprint.

Focus on its base subscribers; ARPU uplift and profitability. Maxis had seen some operational drivers stabilising despite the challenging market where the price competition is expected to persist. Moving forward, management will continue to focus on acquiring value subscribers, suggesting that its total subscriber base (2Q16: 11.0m) may face some downward bias. Nevertheless, Maxis believes there are still rooms to uplift its ARPU by providing more values (i.e. new features and etc.) and attract high ARPU data centric customers and subsequently to deliver reasonable profits. The group’s Prepaid/Postpaid ARPU stood at RM38/RM102 per month, respectively, significantly lower as compared to its flagship MaxisONE plan’s ARPU of RM143/month.

Moving forward, we expect the current war in the mobile space to rage on as we have yet to see any signs of abatement. Meanwhile, the new entrance of TM’s Webe, which offers an unlimited data package, could potentially add fuel to the battleground should the incumbents decide to response albeit we have yet to see any thus far. Maxis remains fairly confident to see a better 2H, in view of its recent upgraded MaxisONE plan (higher data quota with datapool features) and Hotlink package (free 8GB/month for life), which have received higher subscriber acquisition momentum thus far. Maxis is expecting the positive momentum to continue in 2H, supported by its vast 4G network as well as more innovative products launching.

Source: Kenanga Research - 25 Aug 2016