Wednesday, June 1, 2011

Maxis Berhad Earnings Evaluations: 1Q2011 Results: Below Expectations

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

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.

Weaker Mobile and International Gateway revenue, higher finance costs.

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

# 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.

Government, regulatory, industry and execution risks.

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.

Hold (TP: RM5.51)

New business potential in converged services, strong postpaid ARPUs.

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

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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