Wednesday, June 1, 2011

Maxis Berhad Earnings Evaluations: 1Q2011 Results: Below Expectations

1 June 2011
Price Target: RM5.51
Share Price: RM5.47


Results
While we had expected a seasonally weaker 1Q2011, results came in below expectations with weaker Mobile revenues and scaled-back International Gateway services.

Despite higher EBITDA margins from cost controls, higher D&A and net finance costs led to 1Q11 PAT coming in below our estimates.

Deviations
Weaker Mobile and International Gateway revenue, higher finance costs.

Dividend
Declared an interim single-tier (tax exempt) dividend of 8 sen. Maxis hopes to maintain dividends similar to FY10 levels.

Highlights
# In 1Q2011, Maxis embarked on a stricter subscriber definition which excludes Postpaid and WBB subscribers if they are barred for >50 days. Prepaid sub base excludes subs which did not contribute to revenue for >50 days. Under the previous measure, Prepaid net adds for 1Q11 were 112k, while Postpaid and WBB net adds were 48k.

# Maxis aims to roll-out a new suite of integrated and interactive services in mid-2012. It has reached 40-45k FTTH subscribers by end 2011 and aims to hit 500k subscribers in 2015 and 1m subscribers by 2018.

# WBB ARPUs fell to RM61 due to a re-pricing of existing subscribers into lower tariff plans. Competition and price pressure is expected to ease in 24 months.

# Maxis’ 3G/WBB network now covers 80% of the population. Its smartphone user ARPUs average 60% higher than non-smartphone users.

# The Singapore Malaysia roaming tariff cut will impact Maxis RM2million/month in FY11 and RM3/month in FY12 and FY13.

# FY11 CAPEX guidance lowered to RM1.3 billion.

Risks
Government, regulatory, industry and execution risks.

Forecasts
We update our estimates to reflect 1Q11 results, lower International Gateway contribution and lower costs.

As a result, our FY11, FY12 and FY13 EPS estimates are revised by –5.6%, -2.7% and –0.01% respectively.

Rating
Hold (TP: RM5.51)

Positives
New business potential in converged services, strong postpaid ARPUs.

Negatives
Initially low margin fixed-services would depress margins, weakening prepaid ARPUs.

Valuation
Our DDM-based target price of RM5.51 remains unchanged. At current price, Maxis is trading at an estimated PER of 18.1x and 16.5xc for FY11 and FY12 respectively.


Source: HLeBroking

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