2015E dividends could be the twist
Transcription
2015E dividends could be the twist
26 March 2015 2015E dividends could be the twist Company Update After our meeting with management, we believe 2015 will be a year of delivery for Maxis as it kicks off its transformational plans. If 4Q14 operating trends are an early indicator, we would expect Maxis to gain lost ground in this competitive market, provided its performance sustains. However, we believe that strong gains will face challenges and, thus, expect any sharp earnings upgrade to be limited. Dividend downside on the other hand remains a key concern, especially given the consensus’s wide range. Maintain HOLD and TP of RM7.19. On track for further operational improvement in 2015 We think that Maxis is on the right track to futher showing operational improvement as customer experience and satisfaction is once again prioritized. For 2015, Maxis is expected to register single-digit service revenue growth, as it regains lost ground both in the postpaid and prepaid segment. We nevertheless think that any sharp earning upgrades in the near term would likely be challenging considering that the other incumbent operators are pursuing similar strategies to grow revenue share. Lower dividends in store for 2015 Operations aside, we believe the biggest concern surrounding Maxis at this point is the dividend quantum for 2015. Management has guided that they will no longer borrrow to fund the dividend payment and thus the consistent 40 sen/share annual payout over 2010-2014 is unlikely to be repeated. This has created some uncertainty and judging by consensus 2015E DPS expectations of 19-40 sen, there may be some disappointment in store. We lower our 2015-17E DPS forecast to 26-28 sen from 32 sen, taking into account its FCF and payout ratio. At a DPS of 26 sen, yields of 4% are also less compelling and at the lower end of the sector average. Maintaining HOLD and target price of RM7.19 On the whole, the market seems to be paying little attention to Maxis’ dividend issue, considering Maxis’ share-price appreciation of 4.4% ytd. Fund flows and portfolio reallocation could be a reason behind this and may continue to be an overbearing factor. We maintain our HOLD rating and our 10-year DCF-derived 12-month target price of RM7.19. At this point, any disappointment in dividends during the 1Q15 results announcement could trigger a de-rating on the stock price while positive earnings upgrades would be a pleasant surprise. Earnings & Valuation Summary FYE 31 Dec 2013 Revenue (RMm) 9,084.0 EBITDA (RMm) 4,573.0 Pretax profit (RMm) 2,496.0 Net profit (RMm) 1,765.0 EPS (sen) 23.5 PER (x) 30.4 Core net profit (RMm) 2,097.0 Core EPS (sen) 27.9 Core EPS growth (%) 2.3 Core PER (x) 25.6 Net DPS (sen) 40.0 Dividend Yield (%) 5.6 EV/EBITDA (x) 13.4 2014 8,389.0 4,296.0 2,436.0 1,721.0 22.9 31.2 1,910.0 25.4 (8.9) 28.1 40.0 5.6 14.6 Chg in EPS (%) Affin/Consensus (x) 2015E 8,607.9 4,312.5 2,665.5 1,968.4 26.2 27.3 1,968.4 26.2 3.1 27.3 26.0 3.6 14.5 2016E 8,724.9 4,353.7 2,760.1 2,038.5 27.2 26.3 2,038.5 27.2 3.6 26.3 27.0 3.8 14.4 2017E 8,831.0 4,415.5 2,934.3 2,167.4 28.9 24.8 2,167.4 28.9 6.3 24.8 28.0 3.9 14.2 1.0 1.0 1.0 Maxis MAXIS MK Sector: Telecommunications RM7.15 @ 25 Mar 2015 HOLD (maintain) Upside 0.6% Price Target: RM7.19 Previous Target: RM7.19 Price Performance Absolute Rel to KLCI 1M +2.1% +2.0% 3M +5.1% +0.6% 12M +9.9% +3.8% Stock Data Issued shares (m) 7,507.3 Mkt cap (RMm)/(US$m) 53,677.3/14,643.9 Avg daily vol - 6mth (m) 3.9 52-wk range (RM) 6.21-7.30 Est free float 18% BV per share (RM) 0.63 P/BV (x) 11.34 Net cash/ (debt) (RMm) (4Q14) (7,467) ROE (2015E) 41.5% Derivatives Nil Shariah Compliant Yes Key Shareholders MCB PNB EPF 70.0% 8.3% 6.2% Source: Affin Hwang, Bloomberg Kevin Low (603) 2143 2235 [email protected] Source: Company, Affin Hwang estimates, Bloomberg Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 1 of 6 6 February 2015 We recently met up with management to discuss several pertinent issues surrounding Maxis, including dividends (given the sharp deviation on consesus forecast for 2015E), growth prospects and traction from its transformational changes and competition, especially from new players. The highlights are discussed in the sections below. Dividends Lower dividend in store for 2015… Since Maxis’ relisting in 2009, the company has paid out an annual DPS of 40 sen per share. This included a quarterly interim DPS of 8 sen coupled with a final DPS of 8 sen. The dividend payout however exceeded the company’s earnings, which resulted in the company having to borrow to fund its dividend payment. As at end-2014, the net-debt-to-EBITDA ratio stood at 1.75x, up from 1.0x in 2009, although still comfortably within management’s internal range of up to 2x. …and yet our dividend forecast could be at risk Management has however been guiding the market that from 2015, the company will no longer borrow to fund its dividend payout. At our recent meeting, management further clarified that the dividend payment would be based on free cash flows after payment of interest and tax charges. Based on our estimates, this would work out to an annual dividend of 26 sen per share or 6.5 sen per quarter, which is below our previous estimate of 8 sen per quarter. Note that this also falls to the lower end of street estimates of 19-40 sen for 2015. With this, we lower our 2015-17E DPS forecast to 2629 sen (from an annual payout of 32 sen previously), assuming a lower payout ratio of between 97-99%. Dividends yields are a lot less compelling at 4% At 26 sen, dividend yields would also be a lot less compelling, and putting Maxis at the lower end of the sector dividend-yield average. This thus remains our key concern for Maxis, ie, that dividends could disappoint, despite its improving operational performance. Revenue growth Targets single-digit service revenue growth in 2015 Growth has been an important agenda for Maxis after having seen a sharp contraction in both revenue and earnings in 2014. This was, however, partially attributed to its transformational strategy involving new products, which ultimately led to an immediate elimination of non-sustainable future revenues, eg, high roaming charges and exhorbitant data charges. MaxisOne take up still limited… We believe that Maxis is on the right track as customer experience and satisfaction is once again prioritized with a goal of eliminating “bill shock”. Importantly, this could possibly address the issue of its declining postpaid ARPUs and likewise grow its prepaid segment (Fig 1 and 2). While take up of its postpaid MaxisOne plan is still relatively small at 250k subs (as at end 2014 or accounting for <8% of its postpaid sub base), this product has had a positive impact of lifting ARPU as most of these subs are on the Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 2 of 6 6 February 2015 RM128 price plans (vs the RM78 lite version), and paying for additional data on top of that. Fig 1: Declining postpaid ARPU Fig 2: Declining prepaid subs Source: Maxis, AffinHwang Source: Maxis, AffinHwang Fig 3: MaxisOne plan for postpaid subscribers Source: Maxis … but could provide upside to ARPU A successful migration of Maxis’ existing postpaid customers to this new plan could lift ARPU and hence earnings, although the small take up so far suggests some stickiness towards existing plans or its subscribers’ unwillingness to commit to a higher monthly plan. Nevertheless, based on our estimates, every RM1 increase in postpaid ARPU could lead to an EPS enhancement of +0.3% and a RM0.04 increase to our 10-year DCFderived target price. Prepaid segment showing improvement Likewise, Maxis’s prepaid product has also been revamped, and now comes inclusive of free basic internet in addition to free social media access (over-the-top chat applications and Facebook) at 64kbps. We believe that this product is potentially gaining traction in the youth segment given the lure of free social media access, which also explains the sharp rise in Maxis’ prepaid sub base in the recent quarter (543k in 4Q14 vs 39k in 3Q14). Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 3 of 6 6 February 2015 Competition Competition remains rational We concur with management that competition in the market place will likely remain rational despite growing threats from the smaller newcomers, which include U Mobile and upcoming wireless service provider, P1. Impact from new competition likely to be muted While the market anticipates the launch of P1’s service, we believe that its impact will be rather muted considering the lack of network infrastructure to have extensive nationwide coverage and, hence, to have a meaningful rollout (note that P1 has LTE spectrum on the 2.3GHz and 2.6GHz bands and TM has the low-band spectrum of 450MHz and 850MHz). While a domestic roaming agreement may materialize, lessons learnt from the Maxis-U Mobile collaboration may deter any incumbent operator from being too aggressive in such arrangements. Valuation and recommendation Maintain HOLD and target price of RM7.19 On the whole, while there are valid concerns over Maxis, we believe that the market seems to be paying little attention to this, judging by Maxis’ share price appreciation of 4.4% ytd. We maintain our HOLD rating and our 10-year DCF-derived 12-month target price of RM7.19. At this point, any disappointment in dividends during the 1Q15 results announcement could trigger a de-rating on the stock but earnings upgrades from its transformational changes would be a pleasant surprise. We nevertheless believe that any sharp upgrades in the near term would likely be challenging considering that the other incumbent operators are pursuing similar strategies to grow revenue share. Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 4 of 6 6 February 2015 MAXIS – FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE Dec (RMm) Total revenue Operating expenses EBITDA Depreciation Amortisation EBIT Net interest income/(expense) Associates' contribution Others Pretax profit Tax Minority interest Net profit 2013 9,084 (4,511) 4,573 (1,101) (265) 3,207 (329) 2,878 (724) (7) 2,147 2014 8,389 (4,093) 4,296 (1,155) (249) 2,892 (380) 2,512 (711) (4) 1,797 2015E 8,608 (4,295) 4,313 (1,014) (265) 3,034 (369) 2,665 (693) (4) 1,968 2016E 8,725 (4,371) 4,354 (973) (265) 3,116 (356) 2,760 (718) (4) 2,039 2017E 8,831 (4,415) 4,415 (872) (265) 3,278 (344) 2,934 (763) (4) 2,167 FYE Dec (RMm) Growth Revenue (%) EBITDA (%) Core net profit (%) Profitability EBITDA margin (%) PBT margin (%) Net profit margin (%) Effective tax rate (%) ROA (%) Core ROE (%) ROCE (%) Dividend payout ratio (%) 50.3 31.7 23.6 25.2 30.0 32.1 23.3 170.1 Balance Sheet Statement FYE Dec (RMm) Fixed assets Other long term assets Total non-current assets Cash and equivalents Stocks Debtors Other current assets Total current assets Creditors Short term borrowings Other current liabilities Total current liabilities Long term borrowings Other long term liabilities Total long term liabilities 2013 4,038 11,440 15,478 808 70 947 27 1,852 2,434 1,021 206 3,661 6,676 977 7,653 2014 4,008 11,523 15,531 1,531 12 971 64 2,578 3,002 949 232 4,183 8,118 1,070 9,188 2015E 3,794 11,258 15,052 2,186 59 825 64 3,134 3,060 949 232 4,241 8,118 1,070 9,188 2016E 3,622 10,993 14,615 2,681 60 837 64 3,642 3,114 949 232 4,295 8,118 1,070 9,188 2017E 3,549 10,728 14,277 3,109 60 847 64 4,081 3,145 949 232 4,326 8,118 1,070 9,188 Liquidity Current ratio (x) Op. cash flow (RMm) Free cashflow (RMm) FCF/share (sen) 6,016 4,738 4,758 4,774 4,844 2013 2,147 1,101 724 (731) 236 3,477 (540) (261) (801) (168) (3,002) 335 (2,835) 2014 1,797 1,155 595 560 4,107 (978) (254) (1,232) 1,476 (3,002) (626) (2,152) 2015E 1,968 1,014 156 695 3,834 (800) (800) (1,952) (426) (2,378) 2016E 2,039 973 42 695 3,748 (800) (800) (2,027) (426) (2,453) 2017E 2,167 872 21 695 3,756 (800) (800) (2,102) (426) (2,528) 2,937 3,129 3,034 2,948 2,956 Shareholders' Funds Cash Flow Statement FYE Dec (RMm) Net Profit Depreciation & amortisation Working capital changes Cash tax paid Others Cashflow from operations Capex Disposal/(purchases) Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Net inct income/(expense) Dividends paid Others Cash flow from financing Free Cash Flow Asset management Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Capital structure Net Gearing (%) Interest Cover (x) Quarterly Profit & Loss FYE 31 Dec (RMm) Revenue Operating expenses EBITDA Depreciation EBIT Net int income/(expense) Associates' contribution Exceptional Items Pretax profit Tax Minority interest Net profit Core net profit Margins (%) EBITDA PBT Net profit 2013 2014 2015E 2016E 2017E 1.3 4.4 2.3 (7.7) (6.1) (8.9) 2.6 0.4 3.1 1.4 1.0 3.6 1.2 1.4 6.3 51.2 29.9 21.4 28.3 26.1 35.5 21.0 174.5 50.1 31.0 22.9 26.0 28.4 41.5 22.0 99.1 49.9 31.6 23.4 26.0 28.1 42.8 22.5 99.4 50.0 33.2 24.5 26.0 28.4 45.1 23.6 97.0 0.5 3,477 2,937 39 0.6 4,107 3,129 42 0.7 3,834 3,034 40 0.8 3,748 2,948 39 0.9 3,756 2,956 39 38 6 195 42 1 264 35 5 260 35 5 260 35 5 260 113.9 12.8 159.1 10.1 144.6 10.1 133.8 10.2 123.0 10.4 4Q13 2,224 (1,121) 1,103 (353) 750 (87) (235) 428 (136) (2) 290 525 1Q14 2,119 (1,043) 1,076 (332) 744 (90) 1 3 657 (169) (4) 484 481 2Q14 2,082 (1,010) 1,072 (349) 723 (91) 2 2 634 (183) (5) 446 444 3Q14 2,065 (972) 1,093 (328) 765 (101) 3 (21) 643 (192) (2) 449 470 4Q14 2,123 (1,068) 1,055 (395) 660 (98) 4 (60) 502 (167) (4) 331 391 49.6 19.2 13.0 50.8 31.0 22.8 51.5 30.5 21.4 52.9 31.1 21.7 49.7 23.6 15.6 Source: Maxis, Affin Hwang forecasts Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 5 of 6 6 February 2015 Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD Total return is expected to be between -5% and +10% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) (“the Company”) based on sources believed to be reliable. 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The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, 50450 Kuala Lumpur. www.affinhwang.com Email : [email protected] Tel : + 603 2143 8668 Fax : + 603 2145 3005 Affin Hwang Investment Bank Bhd (14389-U) (Formerly known as HwangDBS Investment Bank Bhd) Page 6 of 6