We met Maxis CEO Mr Morten Lundal in an informal group meeting yesterday. While Mr Lundal was upbeat on future growth prospects, 2014 will likely be a transition year for improving on internal processes and reinforcing its base before reaping the benefits going forward. He also guided that 2014 DPS will remain at 40 sen. However, given the lack of earnings growth, we maintain our SELL call on Maxis.

• A transition period. We sense that 2014 will likely be a transition year for Maxis as Mr Lundal strives to transform it into a high performance company and rolls out internal process improvements to create a better growth platform going forward. This will partly lead to its 2014 capex rising to MYR1.1bn from the MYR850m expected for this year. Revenue growth will likely remain at the low single digits while its EBITDA margin may see marginal erosion from increased marketing activities.
• Room for improvement.Management said it will work on improving its distribution network and branding as part of its efforts to stem the erosion in prepaid market share. On its postpaid services, pricing data properly will be a priority. Meanwhile, the home segment still faces difficulties as we gather that inefficiencies still remain within the value chain. We believe that protecting and then growing its prepaid business will be a key focus while the home segment will likely take a backseat.
• Potential in enterprise segment.Management believes its enterprise unit can contribute more to overall revenue and sees this as a medium term growth driver on the back of growing adoption of cloud computing.
• Risks. The risks include: i) stronger-than-expected net adds, ii) betterthan-expected execution, and iii) less intense competition.
• Forecasts. We have left our earnings forecasts unchanged.
• Investment case.We maintain our SELL rating on Maxis, with our DCFderived FV unchanged at MYR5.90 (WACC: 8.6%, terminal growth rate: 1.5%). Given the lack of earnings growth, Maxis’ appeal has always been its relatively generous dividend yields. However, without a strong earnings growth profile, we think the stock lacks catalysts. Potential pressure on margins remains a risk, depending on the intensity of competition.

Financial Exhibits

SWOT Analysis

• Maxis together with Astro launched Astro B.yond IPTV (internet protocol television) on 30 April 2013

Company Profile 
Maxis is the largest mobile operator in Malaysia and is the only integrated communications service provider.

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Source: RHB