Maxis reported its Fourth Quarter 2016 Financial Results last week. Below are the analyst comments on Maxis Performance.
Analyst comment by TA Securities
Maxis announced a FY16 core net profit of RM1,963mn (+14.3% QoQ, +0.6% YoY). Albeit at the higher end, results were within ours and consensus expectations at 104.8% and 103.6%. A fourth interim dividend of 5.0sen (YTD: 20sen) was declared, unchanged from the previous year.
QoQ. Ending the year on a strong note, mobile service revenue (+2.3% QoQ) increased for the second consecutive quarter. Blended ARPU rose to RM52 (+4.0% QoQ) – lifted by mobile internet and roaming revenue. Postpaid subscribers have stabilised (after 13 consecutive QoQ declines), reporting 5k in net adds. However, prepaid subscribers remained on a downtrend with net churns of 125k individuals. Normalised EBITDA margins improved 0.7pp due to more efficient marketing spend (-13.0% QoQ).
YoY. Service revenue stood flat at RM8.5bn. A fall in mobile service revenue (-1.8% YoY), was offset by EntFixed (+13.0% YoY) and IntServices (+28.7% YoY) revenues. Prepaid revenue fell 3.7% YoY, as intense competition led to net churns of 607k prepaid subscribers. Partly offsetting this, prepaid ARPU increased to RM37 (+5.7% YoY). This was aided by take up of Hotlink FAST plans (4Q2016: 1.5mn users), with FAST mobile internet users reporting 20% higher ARPU as compared to its legacy base. Prepaid data usage more than doubled to 3.3GB/month.
Postpaid revenues performed better. Similar to its prepaid segment, a decline in postpaid subscribers (-161k individuals) were offset by higher postpaid ARPU. Postpaid ARPU increased to RM104, driven by MaxisONE Plan (MOP) subscribers. Its MOP subscriber base has doubled to 1.7mn subscribers, with higher ARPUs of RM127 (22.1% premium). In November 2016, MOP were once again upgraded with increased data allocations. While down trading remains a concern for us, management alluded that it has become more manageable.
On better cost management initiatives, normalised EBITDA margins improved 0.7pp to 52.1%. Sales and marketing expenses decreased 4.2% YoY, with the rollout of more targeted ads and a shift from traditional to digital advertising mediums.
Impact
Adjusting for year-end numbers and increasing our postpaid revenue and depreciation expenses assumptions, we tweak our FY17/FY18 earnings by 1.7/-1.0% to RM1,885mn/RM1,911mn. We also introduce our FY19 earnings of RM1,948mn.
Outlook
Guidance for 2017 was revealed. Little changed, service revenue, absolute EBITDA and base capex were guided at similar levels to FY16. Priorities will be focused on core customer propositions, customer experience and maintaining its network quality advantage. We remain wary of competition moving into 2017. We believe it will remain intense, premised on efforts by webe and Celcom to gain/regain market share, coupled with a more equitable spectrum portfolio in the 2H2017. As the MOP remains priced at a premium, we also do not discount further potential subscriber loss and ARPU pressure from downtrading.
Its Net debt/EBITDA currently stands at 1.9x – close to its comfortable threshold of 2.0x. Given the flattish outlook and further spectrum reviews around the corner, we believe there are limited upsides to dividends in the near future.
Valuation
We raise our TP for Maxis to RM5.95/share – based on a DCF valuation with WACC at 7.0% and long term growth rate of 1.0%. Nonetheless, we remain negative on the stock, premised on limited growth opportunities and dividend upsides. Key risks include: 1) Ability to maintain premium pricing; 2) Further spectrum reviews and 3) Leveraged position with Net debt/EBITDA at 1.9x. We believe the stock is fairly valued, as at 12.6x EV/EBITDA it trades slightly above its historical average of 12.1x. SELL.
Analyst comment by JF Apex Securities
- 4Q16 normalised PAT met expectation after rising 5.8% QoQ and 14% YoY to RM544m. Quarterly revenue increased 2.7% QoQ and 1.7% YoY to RM2.21bn on the back of higher ARPU despite less subscribers.
- Within forecast – Maxis’ performance was within expectation as twelve months’ normalized net profit made up 106% of our full year forecast. Revenue also met our forecast after accounting for 98% of our FY16 estimate.
- Higher profit margin – 4Q16 normalised PAT margin continued to improve after rising 0.8 percentage points to 24.6% (against 3Q16: 23.8%) while normalized EBIDTA margin increased 0.6 percentage points to 53.4%. Margins improved following ongoin operating cost control measures.
- Higher ARPU despite losing subscribers – Overall, blended ARPU in 4Q16 was slightly higher at RM57 (vs RM56 in 3Q16) with a smaller churn of 52k (vs 112k in 3Q16) as total subscribers declined to 10.85m from 10.9m in 3Q16.
- Flat prepaid revenue – Prepaid revenue was 0.2% QoQ higher but 1.3% YoY lower at RM1.02bn as ARPU increased to RM42 vs RM41 in 3Q16. Maxis lost 61k prepaid subscribers to 7.9m during the quarter (vs 101k churn in 3Q16).
- Postpaid stabilized – Postpaid revenue was 4.6% QoQ higher but 0.5% YoY lower at RM1bn vs RM960m in 3Q16 as ARPU increased to RM104 from RM100 in 3Q16. During the quarter Maxis added 34k postpaid subscribers (vs 18k in 3Q16) to 2.71m.
Earnings Outlook/Revision
- Forecast maintained – Our FY17 and FY18 estimates are maintained as we expect cost reduction measures to continue and subscribership to improve with lower churn rate.
- Higher gearing – Debt increased to RM9.25bn in 4Q16 from RM8.3bn 3Q16 due to financing of the spectrum fee of RM816.75m. As result, net debt/EBITDA rose to 1.88x in 4Q16 from 1.68x in 3Q16.
Valuation & Recommendation
- Maxis announced its final interim dividend of 5 sen per share, meeting full year forecast of 20 sen and translating into a yield of 3.2%. Due to its high gearing, we expect lower dividend of 16 sen for FY17 which translates into an unattractive yield of 2.5%.
- Downgrade to SELL from HOLD with a lower target price of RM5.26 (from previous RM6.28) based on DDM. Despite improved profit margins, gearing and dividend remain a concern