Go to Winners Page
Highest return on equity over three years
Super Big Cap Companies — Above RM40 Billion Market Capitalisation: Maxis
by Ben Shane Lim
The larger the company, the tougher it is to generate high return on equity (ROE). Yet, in an industry that is facing unprecedented competition, Maxis Bhd still manages to stand out as the most profitable company in the newly created super big cap category.
This is Maxis’ debut win in The Edge Billion Ringgit Club, but it comes in one of the most challenging years yet for incumbent telcos.
Price competition has been brutal over the past one year. As at June 30, Maxis’ total mobile subscriber base had fallen by 9.82% year on year to 11.02 million. That is a loss of 1.2 million subscribers in the span of a year.
The exodus was noticeably from Maxis’ prepaid customers, which saw a loss of 960,000 subscribers or 10.6% to 8.11 million. However, the postpaid segment remained relatively insulated, losing only 0.43 % of subscribers in the same period.
In a way, this underscores Maxis’ resilience in an increasingly competitive industry. The company managed to retain its high-value customers while losing some of its low average revenue per user (ARPU) subscribers. The net result was a 5.88% increase in blended ARPU to RM54 a month (for 2Q2016), up from RM51 the previous year. This is impressive, given that the other telcos saw a decline in ARPU. In fact, Maxis’ postpaid
ARPU of RM102 a month remains the highest in the industry.
Nonetheless, Maxis still felt a pinch to its bottom line. For the first half of the year, the group’s revenue fell 0.4% y-o-y to RM4.24 billion while net profit saw a sharp 7% decline to RM905 million. However, this was mainly due to higher marketing and expenses as well as traffic costs. In other words Maxis’ profitability should recover slightly once the marketing expenses normalise in the second half.
For the time being, Maxis still saw its prized earnings before interest, taxes, depreciation and amortisation (Ebitda) margins fall below 50% to 47.9%. That said, it is important to note that Maxis still has the highest Ebitda margin in the industry. In fact, it has one of the highest in the industry worldwide.
With these margins and the high dividend payout each year, it is no wonder that Maxis stood out among large cap companies in terms of ROE, which grew to 39.05% in FY2015 compared with 24.53% in FY2012.
In previous years, Maxis’ dividend payout was in excess of its earnings. In fact, one of Maxis’ more attractive qualities has been its dividend payout. But following a rally in the company’s share price to RM6.34 on Aug 10, dividend yield compressed to 3.1%. In a nutshell, Maxis does not have much room to trim dividends if it wants to keep shareholders happy.
Meanwhile, the company’s cash pile has been dwindling, falling by 27.1% to RM973 million. It is still sizeable, but the current dividend payout may not be sustainable.
Furthermore, Maxis will have to contend with the entry of Telekom Malaysia Bhd-backed webe that will increase competition. “The entry of webe is dilutive to Maxis’ postpaid dominance. We estimate that Maxis could lose a portion of its postpaid leadership with the entry of webe amid weak consumer sentiment. Based on our scenario, Maxis’ 2018 net profit could fall by 12%. We have already factored in ARPU erosion arising from webe as a fifth mobile player as we project 5% ARPU contraction by 2018,” writes UOB Kay Hian in a recent note. UOB Kay Hian has “hold” call and RM5.65 target price for Maxis.
It is going to take a lot of hard work for this super big cap telco to retain its title.