Maxis Bhd (KLSE:MAXIS) ([stock_quote symbol=”KLSE:MAXIS” show=”name” nolink=”1″ class=”1″]) is one of the key telecommunication companies in Malaysia. The company is a leading mobile and internet provider in the country. Based on its first quarter 2017 presentation, the company has more than 14 million postpaid and prepaid subscribers using its services. The company was listed on Bursa Malaysia at the end of 2009. The company is one of a favourite among dividend investors as it has been paying out consistent dividends since its listing. Does the sweet dividend of Maxis Bhd make it a good investment? Here is our analysis on the company.
Ticker Symbol: KLSE:MAXIS, 6012.KL
Market Cap: RM 46.4 Billion (5th June 2017)
Maxis is one of the largest telecommunication companies in Malaysia. It focuses on providing mobile services at the beginning but has since expanded to business services and broadband. However, as of 2016, 92.3% of its revenue is still coming from its prepaid and postpaid mobile services.
So, what opportunities and risks lie ahead for Maxis Bhd?
Key Strength and Opportunities
Telecommunication has traditionally been a very stable business. Many investors associate it as being a utility. Indeed, since 2009, Maxis Bhd has a very stable revenue and operation profit trends. Its business has a high profit after tax margin of more than 20% over the past three years. It has mostly generated strong free cash flow over the past decade. This means that Maxis Bhd has the characteristic of a strong dividend company, which is great news for income investors.
One possible area of expansion for the company is its enterprise services. Maxis now has a wide range of services for companies, not just on their telecommunication needs but also cloud computing, e-payment and other technology needs to upgrade its clients’ businesses.
As technology plays a bigger part in companies, Maxis might stand to benefit from this upgrading trend.
Apart from that, the internet and data usage is increasing rapidly in Malaysia. Maxis claimed to have the widest coverage and fastest speed on their 4G network. It is also offering home broadband and other 4G wifi services. This might help it gain some market share in the broadband business, which is traditionally dominated by Telekom Malaysia Berhad (KLSE:TM) ([stock_quote symbol=”KLSE:TM” show=”name” nolink=”1″ class=”1″]).
Key Risks and Threats
Data, Data, Data
Although Maxis calling an all digitization strategy for the company to embrace data usage, the fact remains that most of its revenue is still coming from its prepaid and postpaid services. And these services are traditionally linked to mainly call and SMS usage. As the demand for data increases, the demand for its call and SMS services would decline as well. Since data is becoming more and more commoditized, it is unclear if Maxis would still be able to enjoy such high margins and revenue without its call and SMS services.
Maxis has hardly grew its profit since 2010.
Competition Heating Up
In the past, there have only been a few competitors for Maxis in the mobile telecommunication space. In the past, it would only need to compete with Celcom, part of the Axiata Group Bhd (KLSE:AXIATA) ([stock_quote symbol=”KLSE:AXIATA” show=”name” nolink=”1″ class=”1″]) and Digi.com Bhd (KLSE:DIGI) ([stock_quote symbol=”KLSE:DIGI” show=”name” nolink=”1″ class=”1″]). However, since the current landscape is more about the internet services than just traditional phone lines. Thus, its competition has expanded by a huge magnitude.
Internet providers in Malaysia now include companies like:
- Telekom Malaysia Bhd
- Axiata Group Bhd
- Digi.com Bhd
- YTL e-Solutions Bhd (KLSE:YTLE) ([stock_quote symbol=”KLSE:YTLE” show=”name” nolink=”1″ class=”1″])
- Green Packet (KLSE:GPACKET) ([stock_quote symbol=”KLSE:GPACKET” show=”name” nolink=”1″ class=”1″])
- Redtone International Bhd (KLSE:REDTONE) ([stock_quote symbol=”KLSE:REDTONE” show=”name” nolink=”1″ class=”1″])
- U Mobile
- Astro Malaysia Holdings Bhd (KLSE:ASTRO) ([stock_quote symbol=”KLSE:ASTRO” show=”name” nolink=”1″ class=”1″])
- Time Dotcom Bhd (KLSE:TIMECOM) ([stock_quote symbol=”KLSE:TIMECOM” show=”name” nolink=”1″ class=”1″])
As you can see, it is no longer in a controlled environment competing with just two companies. Rather, it has to compete with incumbent established telcos in Malaysia as well as new startups in the industry and most of them are just as well funded as Maxis Bhd.
Therefore, there are significant risks on what the future lies for Maxis or other telcos in the future.
The Listing and Relisting of Maxis Bhd
Lastly is an issue related directly to Maxis Bhd’s corporate governance. Maxis was listed back in 2002. However, the company was taken private by its majority shareholder back in 2007. At that time, Maxis is an international company with fast-growing markets such as India and Indonesia under its belt.
However, when Maxis Bhd relisted in 2009, it only included its domestic business while the majority shareholders took control of its India and Indonesia investments. Indeed, Maxis was taken private at a good exit price for its previous shareholders back in 2007, as most minority investors would have made a profit from the privatization. However, the fact that the company privatized its business and relist only its domestic operations again for minority shareholders put into question whether the main shareholders have aligned interest with its minority shareholders.
Maxis Bhd is currently trading at about 23.3 times its earnings and giving investors a 3.2% dividend yield. Based on its 5-year average valuation, Maxis has been trading around 26.4 times its earnings and offering a dividend yield of 4.4%.
This means that although it seems “cheaper” in term of its price to earnings now, it is having a much lower yield compared to its 5-year average.
However, for a company that offers little growth, its dividend yield would be more important to shareholders.
Ms. Audrey Ho
Tel: +603 2330 7083
Fax: +603 2330 0594
Menara Maxis, KLCC
50088 Kuala Lumpur
- BGSM Equity Holdings Sdn Bhd – 64.91%
- Employees Provident Fund Board – 9.02%
- Amanah Saham Bumiputera – 8.35%
Income Statement – Click Here
Maxis enjoyed a high gross margin in its business. Typically, its gross margin is around 66% to 68% over the past five years. Similarly, its net income margins were 20% over the past few years.
However, its growth rate was not impressive. Its revenue has only grown at about 2.1% over the past decade. Its net income has actually declined at 0.45% a year over the same period. Based on its earnings per share, that has been declining at 4.5% over the past five years. All of those trends are quite alarming for investors.
Balance Sheet – Click Here
Maxis is a relatively leveraged firm. This is typical of a telco. Due to its stable revenue stream and predictable cash flow, a telco tends to fund more of its operation using debt. As at the end of 2016, Maxis has a debt to equity ratio of 1.86 times and a leverage of 4.2 times.
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.