Investment Highlights

• We maintain our HOLD recommendation on Maxis with unchanged forecasts and a DCF-derived fair value of RM5.76/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.

• We highlight the salient takeaways from the teleconference yesterday as follows:

• Maxis reaffirmed that the 3G radio access network wholesale arrangement with U Mobile will not have a significant impact on 1QFY20 earnings, as the infrastructure-sharing proposition has progressively expired since June last year. Recall that the contract contributed revenues of RM15mil in 4QFY19 and RM138mil in FY19. A large portion of the 4QFY19 wholesale revenue largely stems from the ongoing 2G wholesale arrangement with U Mobile.

• Management is confident of its projection of “flat to low singledigit increase” for both FY20F service revenue and normalised EBITDA, which is in sharp contrast with Digi’s “flat-low singledigit decline” expectation due to the 0.96 sen decline in mobile termination rates this year.

• We believe this stems from Maxis’ lower exposure to the migrant segment and growing subscriber base, which commendably rose by 88K QoQ as the 174K rise in postpaid users to 3.8mil was partly offset by an 86K decrease in prepaid segment to 7.4mil. This overall net increase appears to be steady, as the group's FY19 subscriber base has climbed by 369K YoY vs. Digi’s decline of 810K.

• The postpaid segment remains Maxis’ mainstay, growing by 565K YoY in FY19 vs. Digi’s 227K. With blended ARPU maintained YoY at RM58/month, postpaid operations accounts for 55% of Maxis’ FY19 mobile revenue vs. Digi’s 47%.

• While only accounting for 5% of FY19 service revenue, management remains confident that the fibre business will continue to scale up with home connections rising by 22K QoQ and 101K YoY to 327K while business connections increased by 3K QoQ and 19K YoY to 42k.

• Traffic costs rose 16% YoY to RM3.5bil due to higher promotion-driven device sales, which are included in this category. Excluding device revenue, traffic costs would have declined in tandem with industry volume trends.

• Fixed enterprise services, which accounted for 4% of FY19 group revenue, registered an impressive 61% QoQ surge to RM116mil in 4QFY19 due to more contract signings, which are likely to continue contributing in 1QFY20.

• While management is actively monitoring the impact of the Wuhan conoravirus epidemic on mobile roaming activities, we do not expect any substantive impact given the pervasive usage of data-based voice and social media solutions.

• We view the stock’s fair FY20F EV/EBITDA of 13x as on parity with its 3-year average, while providing a decent dividend yield of 4%.

Source: AmInvest Research - 21 Feb 2020