MAXIS Bhd is preparing its stores for the long haul, with its dividend cut likely to build up coffers to weather the Covid-19 pandemic, which has no end in sight, analysts said. This is despite resilience in the telco’s topline, and the results that were mostly within the expectations of the analysts.
This follows the announcement of Maxis’ results for its first quarter of the 2020 financial year. The results had Maxis reporting a core net profit of RM360 mil, a quarter-on-quarter (qoq) increase of 4.7%.
This was driven by savings realised from ongoing productivity and working capital programmes, and the base effect from higher device costs in the fourth quarter of Maxis’ 2019 financial year.
Still, this marked a 10.9% drop year-on-year (yoy), due to lower wholesale revenue, as per the scheduled termination of the group’s 3G radio access network sharing alliance agreement with U Mobile, and a higher impairment made to receivables.
However, according to TA Securities analyst Wilson Loo, a notable item is that the interim dividend posted by Maxis for the quarter came up to 4 sen, instead of the historical 5 sen.
“Maxis declared a 1st interim dividend of 4.0 sen which is below our expectations and of note, marks a deviation from the quarterly dividend of 5.0 sen declared since FY15. While cash flow remained resilient, the reduction is a prudent measure undertaken in view of the uncertainty posed by the Covid-19 pandemic,” said Loo.
On this matter, MIDF Research analyst Martin Foo Chuan Loong believes that Maxis “may be delaying part of the dividend to build up its cash reserves, as well as in anticipation of heightened capital spending in the coming quarters.”
He also noted that Maxis’ cash balance at the end of the quarter had increased significantly by 62.9% yoy to RM948 mil.
JF Apex Securities analyst Lee Cherng Wee notes that Maxis is the next telco to have withdrawn guidance for 2020, given the uncertainties and challenges arising from Covid-19.
Previously, Maxis had guided service revenue and normalised earnings before interest, tax, depreciation and amortisation to be flat or growing by a single digit, and a base capital expenditure of RM1 bil.
Affin Hwang Capital analyst Isaac Chow also expressed surprise at the lower dividend of 4 sen, and expects further dividend payouts to track the group’s earnings.
“Broadly, we expect the Covid-19 pandemic and Movement Control Order to affect Maxis’ near term profitability through lower prepaid Average Revenue Per User (ARPU) and the ensuing weak economic conditions to affect its 2020 to 2021 ARPUs due to cautious consumer and business spending.
“Besides, high operating costs such as traffic, commission costs, and allowance for doubtful debts would also weigh on its profitability,” said Chow.
AmInvestment Bank analyst Alex Goh also noted the cautious move that was the lower dividend, despite the higher number of subscribers seen in the quarter.
“Qoq, Maxis’ overall subscribers climbed a commendable 91,000 to 11.2 million from a 78,000 increase in postpaid customers to 3.8 million and 13,000 growth in prepaid users to 7.4 million.
“However, based on revenue-generating subscribers within 30 days, prepaid subscribers fell 344,000 qoq and 584,000 yoy to 5.9 million from SIM consolidation and postpaid migration.
“Likewise, blended ARPU slid by RM2 per month qoq to RM49/month in tandem with postpaid and prepaid both contracting by RM2 per month,” noted Goh.
TA Securities, MIDF Research, JF Apex Securities and Affin Hwang Capital all maintained their sell calls on Maxis, with TA Securities lowering its target price to RM5.02 from a previous RM5.05. The others maintained their target prices of RM4.45, RM4.85 and RM4.55 respectively.
AmInvestment Bank downgraded its call to hold, with a lower fair value of RM5.50 from a previous RM5.76. This is on the back of a 15% rise in share price since March 18 from a low of RM4.68 to somewhere near the fair value of RM5.50.
At 2.15 pm, Maxis’ shares were at RM5.34, up 3 sen, with 321,900 shares traded. – April 27, 2020
