Growth for DiGi, transformation for Maxis

by **Cals** Mon 17 Feb 2014, 18:44

Business & Markets 2014

Written by Yen Ne Foo of theedgemalaysia.com

Monday, 17 February 2014 10:18

KUALA LUMPUR: Last week DiGi.Com Bhd and Maxis Bhd delivered quite a contrasting set of earnings for the quarter ended Dec 31, 2013.

DiGi.Com saw its net profit more than doubled to RM548.5 million for 4QFY13 ended Dec 31 from RM245.5 million in the previous corresponding period, on strong uptake of its mobile Internet services owing to its upgraded network.

Meanwhile, Maxis’ net profit was down 23% to RM290 million for the quarter from RM378 million in the previous corresponding period. Revenue for the quarter dropped slightly to RM2.22 billion from RM2.31 billion in previous year quarter. Maxis attributed its modest performance in revenue (up 1% y-o-y, down 15% q-o-q) to poorer results in the mobile segment.

DiGi.Com’s share price staged a rebound and climbed to a one-year high of RM5.16 last Friday, while Maxis retreated from its peak of RM7.30 to RM6.93 last Friday.

DiGi saw an improvement of 4.8% to 11 million users, while Maxis suffered a decline of 9% to 12.9 million subscribers in 2013 compared with the preceding year.

On a quarterly basis, Maxis’ total subscription levels shrunk 2%, while DiGi showed sustained growth of 1.6%.

When comparing the two telcos, Lee Wee Sieng, analyst from PublicInvest Research said, “DiGi’s 4Q13 results were definitely better than Maxis, both financially and operationally.

“DiGi net added 168,000 subscribers but Maxis net lost 320,000 subscribers. In a way, DiGi was benefitting from Maxis’ loss of market share.”

DiGi gained most ground in the prepaid segment as it recorded an improvement of 5.3% y-o-y to 9.2 million, while its competitor lost 12% y-o-y and 2% q-o-q in the segment. However, for postpaid segment, Maxis saw stronger growth of 5% y-o-y compared with DiGi’s 1.7%. On q-o-q basis, Maxis’ growth on postpaid subscriber base is 1% versus Digi’s 0.2%.

But some investment analysts don’t see the contraction on subscriber-base at Maxis as a cause for concern going forward. By the same token, this is seen as a house-cleaning measure that would reap benefits in the future.

UOB Kay Hian Research commented that the drop in subscribers stems from Maxis’ decision to remove non-active and non-revenue generating customers of its expired prepaid Hotlink Youth Club plans and legacy plans.

In terms of average revenue per user (ARPU), Maxis’ prepaid services maintained a steady ARPU at RM33 q-o-q and RM32 y-o-y. Its postpaid ARPU inched RM1 to RM101 q-o-q but registered a RM6 fall y-o-y to RM101.

On both q-o-q and y-o-y basis, DiGi’s ARPU for prepaid services is unchanged at RM41. Its postpaid ARPU in 4Q13 was RM83, a RM1 increase from the preceding quarter but is unchanged y-o-y.

Subscriber-base aside, additional costs and provision also ate into Maxis’ earnings. The telco incurred a further RM41 million in retrenchment cost in 4Q13 compared with RM102 million in the preceding quarter.

In a research note, UOB Kay Hian said industry sources indicated that this involved about 250 staff, with the focus on mid-level management. Maxis incurred RM39 million in accelerated depreciation, RM87 million in asset impairment, RM65 million in provisions for contract obligations (relating to its fibre business) and RM4 million for content costs, according to the research organisation.

“Lumpy provisions and a second retrenchment exercise in 4Q13 are indicative of a kitchen-sinking exercise under its new CEO,” UOB Kay Hian commented.

Over at DiGi.Com, the high-speed mobile internet service has given it a turbocharger to its earnings growth.

The expansion of DiGi’s 3G/HSPA+ population to 80% and successfully closing the data network gap from 67% also helped spur DiGi’s last quarter performance.

Lee said: “DiGi completed [its] network modernisation in early 3Q13. If you recall, DiGi was having a lot of problems with its network in 2Q-4Q12 when [it was] swapping [its] network and did not optimise the new network properly.”

“[After] completion of [its] network modernisation, DiGi’s line quality and coverage improved significantly. In addition, DiGi is well-equipped and focused on the internet/data services and did well to ride on its strength in the prepaid segment to grow data revenue,” he added.

DiGi claims that improved data speed is what fuelled its growth in internet revenue, which shot up 43.8% y-o-y and 8.7% q-o-q. Mobile internet penetration rate reached 72% for postpaid and 58% for prepaid.

Kenanga Research said that increased internet-based subscriptions and use will continue to be DiGi’s focus in 2014.

Also noteworthy is DiGi’s cooperation with Celcom and Telekom Malaysia Bhd (TM) in a long-term fibre collaborative deal “to secure quick access to fibre infrastructure for future network capacity demands”.

The collaboration means DiGi and Celcom will jointly be rolling out more than 10,000km of fibre network nationwide over three years.

This puts DiGi in the driver’s seat to improve on its 2013 mobile internet revenue and penetration growth.

Lee believes that Maxis was in a “state of flux” in 4Q13 but the appointment of Morten Lundal as Maxis’ new CEO will help improve the telco’s performance in the second half of 2014.

“Maxis has been on a ‘sleepy’ mode since its re-listing, losing market share to DiGi and Celcom. However, with the new CEO ... on board ..., things ... [will] change.

“[Lundal] is very focused and knows what is wrong with Maxis and how to fix it. [The telco] has already streamlined and ‘flattened’ [its organisational] structure. He wants Maxis to provide quality internet experience for ... users and is addressing the market share slide, in particular the prepaid segment. He [also] wants to grow the enterprise segment,” said Lee, who expects the changes will take some time to gain traction and any results will only be visible from 2H14.

In the same vein, UOB Kay Hian Research commented that Maxis will be busy with transformation in 1H14, and said there will be better upside in DiGi and Celcom.

“We believe Maxis’ competitors, DiGi and Celcom, will take advantage of Maxis’ distraction with the transformation exercise to gain market share. Hence, DiGi and Celcom potentially have a healthy 1H14” it said.

This article first appeared in The Edge Financial Daily, on February 17, 2014.