KUCHING: Analysts have found Maxis Bhd’s (Maxis) results for the second quarter of 2014 (2Q14) to be mediocre given that services revenue and subscriber traction showed disappointing figures.
Researchers at TA Securities Holdings Bhd (TA Research) observed that costs were well contained with strong EBITDA margin exceeding 50 per cent despite transformation initiatives.
In an announcement to Bursa Malaysia, Maxis stated that for the second quarter ended June 30, 2014 (2Q14), overall earnings before interest, tax, depreciation and amortization (EBITDA) and profit after tax (PAT) on a normalised basis stood at RM1.064 billion and RM480 million respectively.
TA Research said Maxis’ earnings miss was due to lower than expected revenue across all segments (except for home), particularly device sales which dropped 80 per cent year on year (y-o-y), data (dropping six per cent y-o-y) and voice (a dip of four per cent y-o-y).
“Device sales and expenses were lower on the back of Maxis’ new practice of outsourcing handset sales to third parties starting from 2Q14,” it added.
On the bright side, the research arm noted that mobile internet sales was higher due to increased adoption as a result of the popularity of Maxis’ new ‘worry free internet’ proposition introduced in 1Q14.
“In addition, service revenue growth registered its first sequential expansion since 1Q13, which may be a prelude to improving usage trends moving forward,” TA Research opined.
Following successive quarters of insignificant average revenue per user (ARPU) uplift for its premaid segment, Maybank Investment Bank Bhd (Maybank IB Research) said Maxis’ prepaid ARPU finally crept up sequentially this quarter.
“We view this as a bottoming of Maxis’ prepaid revenue. Postpaid trends were relatively stable,” the research arm said.
Management’s lower revenue guidance is unlikely to materially change Maxis’ investment case, as management has already guided for 2014 to be a washout year.
All in, Maybank IB Research left its ‘hold’ rating and target price of RM7.20 per share unchanged.
As for TA Research, it reduced its assumptions on handset sales due to Maxis’ new strategy of outsourcing handset sales to third parties.
“In addition, we also cut our service revenue growth assumptions in-line with management’s revised guidance,” the research arm said.
As a result, its earnings forecasts are reduced by six per cent in financial year 2014-2015 (FY14-15) and five per cent in FY16.
In the meanwhile, transformation initiatives which involve hefty subscriber acquisition costs will likely weigh down on EBITDA margin.
“We believe that it will be challenging for Maxis to improvise from its current EBITDA margin of 50 per cent, which is the highest in the industry and also Maxis’ highest level since 3Q11.
“In addition, we expect Maxis to scale back on generous payouts as it reaches its internal gearing limit and allocates capex for 4G expansion,” TA Research opined, adding that this will result in compressed yields for the stock.