Maxis to focus on data products

Maxis Bhd
(Dec 5, RM7.21)
Maintain hold at a lower target price of RM6.80: We retain the view that
Maxis’ new chief executive officer Morten Lundal will need time to cut
bureaucracy that has been holding back the company. This includes another
round of retrenchment following an earlier one in the third quarter (3Q) of 2013
that involved almost 500 staff.
Maxis has been losing subscriber market share (down 13 percentage points)
since June 2008, and it has continued to slip this year to 27%. Hence, since
mid-2013 the company’s focus has been on the prepaid segment, led by the
launch of its latest prepaid pack called #Hotlink, which allows subscribers to
access Internet services even after the validity has expired, but at a very slow
speed of 64kbps.
Maxis managed to defend this segment’s subscriber market share over the past
two years or so — in fact, it registered a slight uptick in 3Q13.
Maxis is also expected to focus on data products where growth in the industry
is coming from. As the largest telco in Malaysia, Maxis is unlikely to start a price
war as it is trying to defend its market share.
We sense that Maxis is more interested in raising average revenue per user
(ARPU), hence we expect it to launch more products to encourage subscribers
to use mobile services more rigorously. Maxis feels the effective data pricing in
the industry may be too low, with some competitors giving away too much free
data. Selling smaller buckets of data (instead of large data bundles) and
charging them more for higher usage is Maxis’ preferred way of educating
consumers to pay more for more data, leading to higher ARPU.
To support its data strategy, Maxis is expected to invest more in 2014 compared to 2013. Its capital expenditure (capex) had fallen to
RM803 million in 2013 (9% of revenue) from RM1.44 billion (16%) and RM1.02 billion (12%) in 2011 and 2012 respectively.
We estimate Maxis will invest RM858 million in 2013 and RM1.05 billion in 2014, representing 9% and 11% of revenues respectively.
We retain the view that Maxis’ 40 sen net dividend per share (DPS) is sustainable over the long term. Our estimates indicate that Maxis’
net debt/earnings before interest, tax, depreciation and amortisation will peak next year at 1.4 times versus 1.3 times as at September
2013.
Although there was no long-term commitment from Morten Lundal, we sense that Maxis’ gearing position is comfortable, and believe this
will enable the company to keep its net DPS at 40 sen. — UOB KayHian, Dec 5