KUCHING: Analysts believe that Maxis Bhd (Maxis) has shown signs of bottoming out in the second quarter (2Q) as service revenue stabilised, following five consecutive quarters of sequential decline.
According to RHB Research Institute Sdn Bhd (RHB Research) analyst Lim Tee Yang, year on year (y-o-y) comparisons of Maxis’ performance is somewhat distorted following management’s decision to revise data pricing by eliminating pay-per-use data pricing for roaming and prepaid.
Regarding Maxis’ mobile Internet, the research house thinks it has been a challenge for Maxis to recover data revenue lost from revising its data pricing.
“However, we view the move in a more positive light in the longer term to address the issue of bill shocks that had been a sticky issue to customer experience in the past,” Lim said.
The analyst observed that mobile internet revenues reached a plateau in 3Q of 2013 (3Q13), but it has begun to grow again at four per cent quarter on quarter (q-o-q) on average since 3Q13, subsequent to the launch of its free basic internet prepaid offering.
In addition, the RHB Research analyst believes that the continued proliferation of mid-tier smartphones (from brands such as Xiaomi and Oppo), may help to stimulate smartphone adoption among Maxis’ prepaid users (smartphone penetration rate of 43 per cent) and thus drive further growth in mobile internet revenue.
“These smartphones tend to attract less subsidies, which is a boon to margins.
“Maxis’ leadership in LTE coverage could be a selling point to new smartphone adopters,” Lim opined.
Overall, RHB Research made no changes to its earnings forecasts and discounted cash flow-derived fair value of RM6.00 per share (weighted average cost of capital: 8.1 per cent, terminal growth: 1.5 per cent).
However, the research house upgraded its recommendation on Maxis to ‘neutral’ from ‘sell’ previously.
“While Maxis lacks earnings growth and dividends may taper off in 2015, we think a lot of the negative news is already priced in at this juncture, unless its operational sequential improvements fade away in the second half (2H),” Lim opined.
While RHB Research expects Maxis to offer lower dividends for FY15, it forecasts dividend per share (DPS) of 32 sen, the decline of the group’s share price has now resulted in a relatively decent dividend yield of five per cent.