Maxis battles shrinking subscriber base


Despite being the only local mobile telecommunications provider that made it to Forbes Global 2000 ranking which features the world’s largest public companies, Maxis Bhd is struggling to stem the decline in subscribers.

Maxis, which took the 1,596th spot was among 14 Malaysian companies listed among a slew of Asian corporations featured in the Forbes Global 2000 ranking of the world’s largest and most powerful public companies.

“The 2017 ranking was bigger and more valuable than last year’s list with higher sales, profits, assets and market values. All four metrics were up from the 2016 ranking and market capitalisation rose 10% from last year,” Forbes said in a recent statement.

While managing to get into Forbes’ list is no mean feat, Malaysia’s second-largest mobile telecommunications operator (telco) by subscriber base has been facing a steady exodus of customers for the past seven quarters since 2015.

The steady drain on its subscriber base has led analysts to caution that any upside would be limited due to rising competition, as well as chinks in Maxis’ pricing strategy which had impacted its bottom line.

For the past two years, telcos have been operating in a challenging environment in which the sector as a whole recorded declines in both revenue and earnings.

The decline was in part due to the introduction of the Goods and Services Tax in the first-half of 2015 (1H15), coupled with intense price cuts. Operators were forced to minimise costs in order to preserve margins given their inability to increase prices brought on by weak consumer sentiment and a weak ringgit.

Telcos are recovering from the intense price war that broke out last year as major players slashed prices to compete and customers were able to take advantage of good deals even with weakened spending power.

According to a Bloomberg Intelligence industry report, Maxis’ shrunken subscriber base would challenge its long-term revenue outlook, even though fixed line sales growth may stay strong in the near term due to a small base.

“Malaysia’s mobile telecom market competition remains intense. Maxis lost 4.1% of its subscribers in the first-quarter (1Q), yet, it still recaptured the number one market position from DiGi.Com Bhd, which lost even more,” it said.

To recall, DiGi recorded a loss of 523,000 subscribers totalling 11.78 million subscribers compared to the 12.3 million it had in 4Q of 2016 (4Q16).

Maxis, however, only lost a total of 178,000 subscribers in the latest quarter. However, in terms of total number of subscribes, Maxis is still behind DiGi by 1.12 million customers with 10.67 million existing customers.

As for market share, it said DiGi had 35.4% of mobile-subscriber share in the final quarter of 2016 compared to 34.3% for Maxis and Celcom Axiata Bhd’s 30.3%.

Maxis continued to struggle to halt declines in its subscriber base, even after two rounds of enhancement to its most popular postpaid mobile

plans, it added. It said in response to last year’s industry price war, Maxis already raised the monthly data quota on the plans and lowered entry prices by adding data-pooling features with friends and family.

“Despite this, last year marked the first time that Maxis was overtaken by DiGi in terms of subscribers,” it said.

Data shows there are currently 7.75 million prepaid and 2.74 million postpaid revenue generating subscribers, out of which 1.74 million are using Hotlink Fast prepaid and 1.78 million are on the MaxisONE postpaid plan.

Maxis added 32,000 postpaid subscribers in the quarter while some 192,000 Hotlink prepaid subscribers migrated to other telcos, terminated their subscriptions or had no activity on their accounts.

In terms of average revenue per user (ARPU), Maxis reported RM102 for postpaid customers and RM42 for prepaid subscribers. Meanwhile, the Maxis One plan ARPU dropped from RM153 a year ago to RM121, as of 1Q17.

MIDF Research said Maxis’ strategy to retain its postpaid and prepaid ARPU had negatively impacted the potential growth in the group’s postpaid and prepaid subscriber base.

The research house said in a recent note, Maxis’ total subscriber base had continued to shrink since 3Q15.

“Its dwindling subscriber base will place Maxis in a difficult position to meaningfully grow its service revenue and maintain a healthy profit margin. We do not see plausible re-rating catalysts in the immediate future,” said MIDF Research.

The research house maintained a ‘Neutral’ call on Maxis with a new target price of RM6.65 per share from RM6.58 previously.

Maxis reported a marginal 0.8% increase in revenue for 1Q17 to RM2.16 billion from RM2.14 billion. At the same time, its earnings declined to RM505 million from RM518 million a year ago.

Its 1Q report noted Maxis’ postpaid revenue was hovering around the RM1 billion mark, the telco giant has a market capitalisation of RM46.41 billion at a current price per share of RM6.18.

In 1Q17, profit after tax declined 6.3% to RM510 million excluding RM5 million unrealised foreign-exchange losses, from RM544 million in 4Q16.

MIDF Research said though its earnings before interest, tax, depreciation and amortisation margin decreased by two percentage points at 52.5%, it was still significantly higher than peers in the country.

Kenanga Research said as the competition in the telco sector stiffens, Maxis should prioritise in moving from products to solutions and going all-out digital, create unmatched customer experience across technologies, services and channels.

“We concur with the management’s current strategies given that the prices offered by telcos are already at very competitive levels. Key differentiating factors are likely to come from value-added services, as well as consumer experience,” it said in a recent research report.

The research house downgraded its rating to ‘Underperform’ from its previous ‘Market Perform’ call, given the group’s total return was less than 3%.

He said 2016 was a challenging yet good year for Maxis, despite the intense price competition in the market and the company expected positive momentum in 2017.

Going forward, analysts concurred mobile players would have a difficult transition period this year and growth would be hard to come by as data pricing had fallen substantially after severe competition in 2016.

They said the generous data quota and freebies offered by mobile players were way above the current average data usage per subscriber, hence limiting ARPU growth even when data consumption was rapidly rising.

They warned that this could accelerate the substitution of voice and SMS to data, where the former two were still substantial at between 48% and 60% of mobile revenue.

AllianceDBS Research Sdn Bhd said the mobile market would stabilise in 1H17 as all the major mobile players would be focusing on adjusting their networks to be ready for the new spectrum assignment starting July 2017.