Investment Highlights

• We maintain our HOLD recommendation on Maxis with unchanged forecasts and a DCF-derived fair value of RM5.60/share, based on a WACC discount rate of 6.3% and a terminal growth rate assumption of 2%. The FV implies an FY20F EV/EBITDA of 13x and is on par with its 3-year average.

• Axiata’s Celcom has expanded its home fibre broadband, offering its service throughout Malaysia from initially only in Sabah under 2 broadband options likely utilising TM’s High Speed Broadband network, similar to Maxis’ fibre plans.

• Celcom’s base Home Fibre Gold plan at RM80/month provides 30Mbps for both downloads and uploads with unlimited quota. The plan is tied with a 24-month contract and Celcom is also bundling a free WiFi router.

• For faster speeds, Home Fibre Gold Supreme option is priced at RM129/month for 100Mbps downloads and 50Mbps uploads. Under promotion currently, the 100Mbps plan is now offered at RM120/month. However, voice calls under both plans are charged 10 sen per minute which is applicable to all networks.

• To support the government’s call for high-speed broadband accessibility at affordable prices, Celcom also revised its 40Mbps Fibre Broadband with unlimited quota to RM80/month from RM180/month currently.

• As a comparison, Maxis’ 30Mbps plan is going for RM89/month and the 100Mbps plan at RM129/month. Unlimited voice options for the 30Mbps plan is priced at RM10/month. unifi currently offers RM79/month for 60GB which excludes voice option, priced separately at RM20/month.

• Given the slightly more competitive pricing from Celcom, we expect Maxis to begin offering cheaper versions to mitigate any market share erosion. As the only mobile player currently with nationwide fibre connectivity, Maxis plans to offer innovative bundled plans while negotiating access agreements with multiple partners, including property developers. Maxis is currently also the only broadband provider that offers a backup 4G LTE connection should there be a fibre connection issue.

• In 1QFY19, Maxis’ home connections have grown impressively by 67K YoY to 251K. Besides targeting demographically younger customers, Maxis is also aggressively targeting the small-medium business and enterprise segment.

• We expect Maxis’ 2QFY19 results, which will be announced later today, to be within expectations. Hence, we view the stock’s FY20F EV/EBITDA of 14x as slightly pricey, mildly above its 3-year average of 13x, while providing a fair dividend yield of 4%.

Source: AmInvest Research - 2 Aug 2019