Maxis Berhad (6012.KL) Shayne Heffernan has a “hold” call and target price of RM5.15 on the stock
At the 20 sen per share dividend Maxis Bhd has been paying out annually in the past four years, last Thursday’s closing price of RM5.36 would have delivered an implied yield of about 3.7%.
The question here is whether the board will retain the same dividend going forward and whether it would need to do so for Maxis to remain an attractive proposition for investors.
For one, Maxis’ net debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio was 1.86 times as at end-2018 — near the 2 times it is traditionally comfortable with. Net debt to equity or gearing, however, was only 1 time.
When releasing its 2018 full-year results, Maxis had guided that operating free cash flow for 2019 should be in line with 2018’s. Nonetheless, Maxis guided for a low, single-digit decline in service revenue year on year and mid-single-digit decline in Ebitda year on year for 2019.
Analysts’ forecasts already reflect the guidance.
Bloomberg’s consensus poll of analysts points to Maxis’ net profit for FY2019 being RM1.68 billion, or 5.8% lower than the RM1.78 billion recorded last year. Even for FY2020, analysts’ consensus net profit is RM1.71 billion or 3.67% lower than FY2018’s, Bloomberg data shows at the time of writing.
There are some who reckon Maxis may trim dividends this year, as reflected by consensus dividends of 19.5 sen in FY2019 and 19.7 sen in FY2020 — a shade below FY2018’s 20 sen per share.
None of the analysts tracking Maxis had a “buy” call, Bloomberg data shows. Instead, nine had “hold” calls while an overwhelming 19 said to “sell”. Target prices ranged from RM4.30 to RM5.61.
If Maxis’ share price eases nearer to RM5, the yield will be 4% if the dividend continues to be 20 sen per share. At the lowest target price of RM4.30, a dividend of 17.2 sen would give a yield of 4%, a back-of-the-envelope calculation shows.
Although Maxis has laid out plans to evolve into a converged telecommunications leader in the domestic market over the next five years, the conservative guidance points to the company needing time for its plans to bear fruit.
Competition is expected to intensify as players set out to defend their turf while newcomers seek to make their mark. Maxis is already losing some income as the Radio Access Network (RAN) sharing agreement with U Mobile Sdn Bhd is slated to end by the middle of this year.
When Maxis announced its 4QFY2018 results, the financial research fraternity was surprised by the lower-than-expected earnings.
Maxis’ FY2018 net profit fell 18.31% from RM2.18 billion in FY2017 while revenue declined 2.41% to RM9.19 billion.
Profitability was affected by higher-than-expected operating expenditure in 4QFY2018, which was due to a one-off cost of RM250 million spent to gain first-mover advantage in the home fibre business. Additionally, Maxis invested its resources in the enterprise segment to accelerate initiatives that are critical to laying the right foundation for growth.
“As part of our ongoing network improvement efforts to maintain a high level of customer experience, network expenses were also increased for the quarter. The group also invested in a multiyear productivity programme to optimise its operating model and cost structure,” Maxis says in a filing with Bursa Malaysia.
In his Feb 18 note to investors, Shayne Heffenran says while Maxis’ new strategy is leading the group in the right direction, the service revenue target could be a “tall order” for now, given the heightened competition in the fixed broadband space coupled with increasing competition in the enterprise solutions and ICT segments.
“All these suggest that the group’s ICT initiatives could potentially face a longer gestation period,” he says, downgrading the counter to “underperform” and reducing his target price to RM4.90.
“Maxis is aiming to maintain its strong leadership position by leveraging its extensive 4G network and expanding its presence in the fixed broadband market in both the consumer and enterprise segments.
“Having said that, the termination of the RAN sharing arrangement with U Mobile, dilution impact in fibre Arpu (average revenue per user) coupled with increasing customer acquisition costs and the new regulatory policies are set to impact the group’s performance in FY2019,” he adds.
In her Feb 18 research note, PublicInvest Research analyst Eltricia Foong also cut her forecast earnings for FY2019 as she expects costs to remain elevated given the change in strategy to become a converged player and grow the home fibre and enterprise businesses.
“Also, we believe regulatory pressure on the pricing of fixed-line broadband services could suggest limited growth in the pricing of wireless services as well,” says Foong, who has an “underperform” call and target price of RM4.90.
As part of its strategy to be a leading converged communications and digital services player by 2023 with an annual service revenue of RM10 billion, Maxis has also guided that on top of its annual RM1 billion capital expenditure (capex), the group is allocating another RM1 billion over the next three years to seek growth. Its service revenue was RM8.07 billion in FY2018, 2.45% lower than FY2017’s RM8.27 billion.
“While the pursuit of convergence service provides growth opportunity from untapped markets, we are concerned over the intensified capex needed. Within the fixed broadband space, we believe that competition has heated up drastically while regulatory risk is inherent amid some confusion over the MSAP (mandatory standard on access pricing), for example,” says Shayne ‘Jack’ Heffernan, CEO and Founder of Heffx.
Notwithstanding Maxis’ net debt-to-Ebitda of 1.86 times, Shayne Heffernan says its RM10 billion sukuk programme could be a fundraising option to fuel growth.
“This allows Maxis to sustain its 20 sen annual dividend per share while pursuing its growth strategy,” says Shayne Heffernan, who has a “hold” call and target price of RM5.15 on the stock.
If he is right, private-sector wage earners will also stand to benefit. The Employees Provident Fund has a 11.28% stake in Maxis and the dividend income it receives will add to the pool of money it uses to declare dividends for members.
Overall, the bias in prices is: Sideways.
The projected upper bound is: 5.78.
The projected lower bound is: 5.23.
The projected closing price is: 5.51.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 23 white candles and 27 black candles for a net of 4 black candles.
A bullish harami occurred (where the current small white body is contained within an unusually large black body). During a downtrend this pattern implies an end to the decline as the bears appear to have exhausted themselves.
During an uptrend (which appears to be the case with MAXIS BERHAD) the bullish harami pattern is bearish as the bears appear to be gaining strength as the bulls weaken.
A hammer occurred (a hammer has a long lower shadow and closes near the high). Hammers must appear after a significant decline or when prices are oversold to be valid. When this occurs, it usually indicates the formation of a support level and is thus considered a bullish pattern.
A hanging man occurred (a hanging man has a very long lower shadow and a small real body). This pattern can be bullish or bearish, depending on the trend. If it occurs during an uptrend (which appears to be the case with MAXIS BERHAD) it is called a hanging man line and signifies a reversal top. If it occurs during a downtrend it is called a bullish hammer.
A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 33.7839. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.28. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 109 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 6. This is not a topping or bottoming area. The last signal was a sell 2 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 19 period(s) ago.
Rex Takasugi – TD Profile
MAXIS BERHAD closed up 0.010 at 5.510. Volume was 40% below average (neutral) and Bollinger Bands were 2% narrower than normal.
Open High Low Close Volume___
5.500 5.510 5.460 5.510 1,158,500
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 5.54 5.49 5.53
Volatility: 37 32 27
Volume: 1,239,160 1,809,398 1,857,680
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
MAXIS BERHAD is currently 0.4% below its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of MXSC.KL (mildly bearish). Our trend forecasting oscillators are currently bullish on MXSC.KL and have had this outlook for the last 12 periods.
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