Investment Highlights

• We maintain our UNDERWEIGHT recommendation on Maxis with an unchanged DCF-derived fair value of RM4.60/share, based on a WACC discount rate of 6.4% and a terminal growth rate assumption of 2%. The FV implies an FY19F EV/EBITDA of 12x and is on par with its 3-year average.

• Last week, Maxis launched an attractive mobile package to leverage its home fibre customer base by offering 3 free SIM cards with unlimited data, calls and SMS which can be activated and used until 15 May this year.

• The following 6 months after 15 May, this unlimited data, call and SMS promotion will be offered for each SIM card at: i) RM98/month with an additional or RM49 per line; and ii) RM128/month for 2 more lines or RM43 per line.

• After 15 November this year, these free lines will be offered at RM48/month based on the unlimited data, call or SMS plans. These new SIM cards allow new customers to port over from existing telephone numbers or opt for new ones.

• Given that Maxis currently does not offer unlimited mobile data package as its highest priced MaxisOne plan at RM188/month has a quota of 60GB, we expect strong demand given its premier brand recognition in cellular and fixed broadband services.

• We believe Maxis hopes to secure new mobile clientele who are younger demographically via households currently subscribing to its fixed broadband service and retain them by providing bestof-class connectivity and customer experience. Once subscribed, Maxis evidently expects “inertia” or the reluctance of customers to switch to other providers to ensure a strong retention rate.

• Based on Maxis’ home fibre customer base of 226K as at 31 December 2018, we estimate that a 50% success rate in securing 3 new mobile customers at RM43/line for each home fibre household could translate to Maxis’ FY19F revenue rising by 1%.

• Assuming a net margin of 50% vs. the group’s current all-in average of 20%, we estimate that the incremental revenues could raise Maxis’ FY19F earnings significantly by up to 3%. Based on a retention rate of 50% on these new customers, we estimate that FY20F revenue could increase by 2% and earnings rise by 5%.

• While positive on this fresh initiative from Maxis, we are wary of new counter-measures by its peers who may offer similar plans to their existing mobile customers and re-catalyse further competition in the mobile wars which had somewhat abated for half a year. Hence, we retain our forecasts for now.

• Currently Celcom does not have an unlimited data package while unlimited data for Digi’s Infinite plan starts at RM100/month for speeds up to 10Mbps and U Mobile’s prepaid plan starts at RM30/month.

• With the upcoming 1QFY19 results likely to be weak due to the lingering impact from U Mobile revenue loss, we view the premium FY19F EV/EBITDA of 14x vs. its 3-year average of 12x as unjustified.

Source: AmInvest Research - 8 Apr 2019