Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: OSK
Maxis Bhd
(June 1, RM5.42)
Maintain neutral at RM5.42 with target price of RM5.20: The habitual 1Q softness led to a contraction in mobile revenue at Maxis, which fell 5.3% quarter-on-quarter in 1QFY11 (+0.7% year-on-year) with weakness across both the voice (-6.3% q-o-q) and non-voice revenue (-4% q-o-q) segments. We note the larger than expected y-o-y erosion in voice revenue in recent quarters, although management said this is now behind the company.
Non-voice revenue contribution rose to 42.1% in 1QFY11. The group's earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 51.6% in 1QFY11 appears to beat our forecast of 48.6% although this is not reflective of underlying trends due to the softer advertising and promotions spending in 1QFY11 and our expectations that margins will come under pressure from 2QFY11. Maxis is scaling back on the low margin hubbing business (less than 5% of revenue).
Positively, Maxis is pioneering stricter subscriber definitions to rightsize its customer registry based on activity. It now excludes postpaid/wireless broadband subscribers barred for more than 50 days (typically 60 days for the industry) and prepaid subscribers that are non-revenue generating beyond 50 days. This affected its prepaid, postpaid and web-based business subscribers base by 1.4%, 12% and 5.3% in 1QFY11, but resulted in a blended average revenue per user (ARPU) accretion of 6.5%. The revision is neutral to Maxis' revenue and Ebitda.
Although not a complete surprise, Maxis revealed an imminent partnership with sister company, Astro All Asia Networks, to offer IPTV. It indicated that more than 100 additional multi-dwelling units (MDUs) were fiberised in 1Q. This compares with the 60,000 MDUs passed by Timedotcom, which rolled out IPTV with Astro in early April.
Management has scaled back its target fibre-to-the-home (FTTH) subscribers from 65,000 to 42,000 to 45,000 by end-2011 due to the delayed handover from Telekom Malaysia Bhd and hopes to achieve positive cash flow when the subscriber base tops one million, likely by 2018.
We are keeping our FY11 and FY12 core net profit forecasts of RM2.40 billion and RM2.49 billion, premised on a core Ebitda margin of 46.8% to 49% for the two years, and revenue growth of 3% to 4% (guidance of 3% to 5% for FY11).
The key risks to our forecasts are: (i) stronger/lower than expected revenue and Ebitda margins; and (ii) capital expenditure (1QFY11: 20% of new FY11 capex guidance of RM1.3 billion, in line with our RM1.2 billion forecast). ' OSK Research, June 1
This article appeared in The Edge Financial Daily, June 2, 2011.
Company Name: MAXIS BERHAD
Research House: OSK
Maxis Bhd
(June 1, RM5.42)
Maintain neutral at RM5.42 with target price of RM5.20: The habitual 1Q softness led to a contraction in mobile revenue at Maxis, which fell 5.3% quarter-on-quarter in 1QFY11 (+0.7% year-on-year) with weakness across both the voice (-6.3% q-o-q) and non-voice revenue (-4% q-o-q) segments. We note the larger than expected y-o-y erosion in voice revenue in recent quarters, although management said this is now behind the company.
Non-voice revenue contribution rose to 42.1% in 1QFY11. The group's earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 51.6% in 1QFY11 appears to beat our forecast of 48.6% although this is not reflective of underlying trends due to the softer advertising and promotions spending in 1QFY11 and our expectations that margins will come under pressure from 2QFY11. Maxis is scaling back on the low margin hubbing business (less than 5% of revenue).
Positively, Maxis is pioneering stricter subscriber definitions to rightsize its customer registry based on activity. It now excludes postpaid/wireless broadband subscribers barred for more than 50 days (typically 60 days for the industry) and prepaid subscribers that are non-revenue generating beyond 50 days. This affected its prepaid, postpaid and web-based business subscribers base by 1.4%, 12% and 5.3% in 1QFY11, but resulted in a blended average revenue per user (ARPU) accretion of 6.5%. The revision is neutral to Maxis' revenue and Ebitda.
Although not a complete surprise, Maxis revealed an imminent partnership with sister company, Astro All Asia Networks, to offer IPTV. It indicated that more than 100 additional multi-dwelling units (MDUs) were fiberised in 1Q. This compares with the 60,000 MDUs passed by Timedotcom, which rolled out IPTV with Astro in early April.
Management has scaled back its target fibre-to-the-home (FTTH) subscribers from 65,000 to 42,000 to 45,000 by end-2011 due to the delayed handover from Telekom Malaysia Bhd and hopes to achieve positive cash flow when the subscriber base tops one million, likely by 2018.
We are keeping our FY11 and FY12 core net profit forecasts of RM2.40 billion and RM2.49 billion, premised on a core Ebitda margin of 46.8% to 49% for the two years, and revenue growth of 3% to 4% (guidance of 3% to 5% for FY11).
The key risks to our forecasts are: (i) stronger/lower than expected revenue and Ebitda margins; and (ii) capital expenditure (1QFY11: 20% of new FY11 capex guidance of RM1.3 billion, in line with our RM1.2 billion forecast). ' OSK Research, June 1
This article appeared in The Edge Financial Daily, June 2, 2011.
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