Maxis has retained its market leadership in the telecommunication postpaid segment, analysts observed. — Reuters photo
KUCHING: Maxis Bhd (Maxis) has retained its market leadership in the telecommunication postpaid segment.
However, analysts believe that its upside might be limited due to rising competition as well as chinks in Maxis’ strategy.
In a report, AllianceDBS Research Sdn Bhd (AllianceDBS Research) noted that Maxis’ strong postpaid performance helped service revenue to record a 2.5 per cent quarter-on-quarter (q-o-q) improvement in 4Q16 (ahead of flat service revenue growth for DiGi).
“Together with lower marketing spend, this pushed earnings before interest, tax, depreciation, and amortisation (EBITDA) margins upwards to 53.4 per cent (versus 52.8 per cent in 3Q16),” it said.
The research team opined, “Despite more competitive pricing from peers, Maxis is still able to maintain its premium in the postpaid segment, perhaps due to a few key factors.
“Firstly, we believe Maxis high-end postpaid customers are not very price sensitive, and the propensity to switch providers is low as long as the gap in network quality is maintained.
“Secondly, Maxis is also relatively more active on handset subsidies compared to Celcom and DiGi, thereby helping it to attract and retain premium customers.”
However, the research arm of TA Securities Holdings Bhd (TA Securities) believed that little changed, service revenue, absolute EBITDA and base capex were guided at similar levels to the financial year 2016 (FY16).
“We remain wary of competition moving into 2017. We believe it will remain intense, premised on efforts by webe and Celcom to gain/regain market share, coupled with a more equitable spectrum portfolio in the the second half of 2017 (2H17).
“As the MaxisONE Plan (MOP) remains priced at a premium, we also do not discount further potential subscriber loss and ARPU pressure from downtrading,” it said.
The research team noted that while its net debt per EBITDA currently stands at 1.9-folds – close to its comfortable threshold of two-folds, given the flattish outlook and further spectrum reviews around the corner, it believed there are limited upsides to dividends in the near future.
Meanwhile, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) said while it commended the group for its effort in increasing its postpaid and prepaid average revenue per user (ARPU), it believed its strategy is somewhat flawed.
“We applaud the group’s effort to increase its postpaid and prepaid ARPU. However, we believe that the strategy has negatively impacted the potential growth in the group’s postpaid and prepaid subscriber base.
“To recall, Maxis’ total subscribers have continued to shrink since 3Q15, albeit slower pace. We are of the opinion that the dwindling subscriber base would place Maxis in a difficult position to meaningfully grow its service revenue and maintain a healthy profit margin,” it commented.
It also pointed out that Maxis’ attractiveness as a dividend play stock has also waned due to the changes in its dividend payout policy.
“Based on the current dividend policy, we view that dividend yield would come in below four per cent,” it said.
Overall, MIDF Research pegged a ‘neutral’ call on the stock. TA Securities pegged a ‘sell’ rating on the stock.
On the other hand, AllianceDBS Research remained optimistic on the stock and pegged a ‘fully valued’ rating for Maxis.
It noted that some of its earnings drivers include its leadership in the postpaid market as well as its overall lead in Malaysia’s mobile market with approximately 39 per cent revenue market share (as at end of 3Q16), and its best-in-class EBITDA.