Tuesday, October 18, 2011

Maxis Berhad: Overweight - Maxis “Home” Run?

19 October 2011
Price Target: RM5.39
Share Price: RM5.37


Highlights
# Finally, Maxis has officially launched home fibre internet which only bundles high speed broadband (HSBB) and voice telephony. Partnership with FetchTV allows Maxis to include IPTV in future, completing its offering as a triple play product.

# Maxis will be competing head-to-head with four other players in the HSBB market segment which is currently led by TM (160k subs), TdC-Astro (1.5k subs), Celcom and P1.

# To date, Maxis has about 1,500 “home” subscribers, whereby 33% is served by self-built HSBB while the remaining is served by TM’s HSBB.

Comments
# We opined that Maxis has lost focused on their core mobile business over HSBB. This can be evidently observed through Maxis’ marketing campaigns.

# This has resulted in poor 1H11 profitability due to depressing net adds and high churn rate as subscribers turn to cheaper alternatives (DiGi and Umobile). This year, we do not foresee that Maxis will enjoy the Raya festive season revenue spike with the same quantum as in the past.

# As for HSBB, Maxis’ pricing is highest (RM4.27/GB) among all, not to mention that the current product offering is inferior (without IPTV) than peers. Thus, we do not think that Maxis is able to sustain premium pricing.

# Another product flaw would be imposing download quota in 2012 while rivals are providing unlimited download (TdC-Astro) or delaying this restriction (TM).

Catalysts
- Higher smartphone penetration boosting data ARPU
- Stronger than expected home fibre internet take up rate
- Possible savings by cascading the 6% service tax

Risks
Government, regulatory, industry and execution risks.

Forecasts
# We update our estimates to reflect contribution from “home” segment and tuning down in view of disappointing net adds and the economic slowdown.

# As a result, our FY11, FY12 and FY13 EPS estimates are revised by –10.9%, -8.5% and –7.3% respectively.

Rating - HOLD: Target Price: RM5.39
Positives
New business potential in converged services, strong postpaid ARPUs and smartphone penetration.

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

Valuation
Following the earnings revision, our new DDM-derived TP of RM5.39 supersedes previous of RM5.51.



Source: HLIB Research

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