Friday, May 18, 2012

Maxis vs Digi: Numbers your friendly analysts don't tell you

Mobile companies in Malaysia are at the stage where they already reached maturity. Based on MCMC's data, Malaysia has almost reached full mobile user penetration. As a result of that, you will see that revenue growth for these companies will either have very slow growth or maybe even negative growth despite the industry being an oligopoly - dominated by Maxis, Celcom and Digi.

Hence, to achieve these, telcos have to balance their expenditures against revenue. What are among the biggest expenditures for mobile companies? Equipment and staffs costs. As for revenue, of course telcos will try to increase its Average Revenue Per User, reducing churn rate while at current times increasing data revenue (mainly 3G).

As I am not able to get information from Celcom yet, let's look at how well the two top telcos managed their costs, how much they expensed their depreciation and amortisation as well as reported their PBT.

Staffs costs are direct costs. We however would like to see whether Digi or Maxis has better management of its staff costs vs revenue.

As for depreciation and amortisation (D&A), a higher D&A would lower down the PBT and Net Profit. Nevertheless, by expensing off the D&A at that reporting year, it would have reduced the total PP&E of the company further, allowing it to potentially report a reduced D&A in the subsequent years. D&A treatment is very much associated with how prudent the companies are. These are also important for us to project or measure the future profits of the company.

Now let's look at Maxis and Digi's numbers:

Maxis revenue is higher by 48.7%, however for 2011 it only managed a 0.78% increase in revenue while Digi's revenue improved at 10.43%. Remember that at this stage it is important to see who manages revenue growth better.

On managing staffs costs, Maxis staffs costs increased by a whopping 14% as against Digi which managed to reduced its costs by 6.45%. Hence from there, we are able to see that for FY2011 revenue earned per RM paid to staffs for Maxis is lower at RM20.13 against RM23.28 for Digi. We can say that Digi from here is able to squeeze more revenue from its staffs.

The notion from here is that, it may not be correct that by paying more we will get more from our staffs. Digi is showing that. It manages its staffs costs better as it has reduced while its revenue shows better improvement.

At the same time for the FY2011 financial year, Digi took an even more conservative accounting stand by depreciating and amortising its non-current assets at RM1.168 billion while Maxis, the bigger telco expending them at a lower total of RM1.149 billion.

Why is the Maxis CEO being paid more than RM10 million for then? He is not doing as well as Digi in terms of growing and managing the company last year. Shouldn't it be that larger and incumbent leader is able to squeeze more out of its staffs than its chasing pack. This is not the case with Maxis. Now, do you know why I am still being positive on Digi?

p.s. by posting this, I am sure not to get any position from Maxis - something that I want to as you can see they pay well.
Also to be fair, Maxis is spending some by moving into the broadband fixed line for homes while Digi has yet to do that.

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