Investment Highlights

• We reiterate our HOLD call on Maxis with an unchanged DCFderived fair value of RM5.50/share, based on a WACC discount rate of 6.3% and terminal growth rate assumption of 2%, implying an FY20F EV/EBITDA of 13x, on par with its 3-year average.

• Following a teleconference with management yesterday, we maintain Maxis’ forecasts pending improved clarity from its 2QFY20 results next month. Here are the salient highlights:

• Still gauging the country’s economic recovery from the Covid- 19 pandemic, management has yet to ascertain a timeline for a revised FY20F guidance given the impact on small businesses, severely affected sectors such as tourism and oil & gas, and temporary closures of retail outlets as well as Maxis’ stores.

• While relatively resilient compared to industrial/retail sectors, management acknowledged that most of its business segments have been impacted by the viral outbreak, especially the prepaid operation which has seen its subscribers declining since 1Q16.

• Given the impact of rival U-Mobile and mobile virtual network operators, Maxis was the first of the 3 largest incumbent operators to launch a prepaid package with unlimited data priced at RM35/month at speed capped at 3Mbps last week. Management intends to be the leader in this lower value segment, which accounts for 42% of 1QFY20 service revenue.

• However, management is awaiting the market’s response before introducing an unlimited data plan for the postpaid segment as the group believes that these subscribers are more concerned with faster speeds and handset deals paired with fibre promotions, which could mitigate migration to prepaid packages.

• The group is not able to provide guidance at this juncture on the Covid-19 impact on blended average revenue per user, which slid RM2/month QoQ to RM49/month, given the promotional incentives during the movement control order (MCO).

• Service revenue, which slid 3% QoQ in 1QFY20, will continue to be impacted by the government-mandated halving of mobile termination rates this year. However, Maxis will continue to focus on higher priced enterprise segments which offer higher return vs. that of retail customers.

• Maxis’ dividend payout, which was 104% in FY19, is being reviewed together with its operational and capital expenditures, focusing more on core network operations and growth projects with more immediate returns. Recall its earlier base capex of RM1bil and growth capex of RM1bil over 3 years.

• While not commenting on the spectrum award changes recently, Maxis prefers multiple operators with network-sharing arrangements for 5G rollouts compared with the government’s earlier plan to award to a single consortium to avoid monopolistic pricing structures and administrative delays.

• The stock’s FY21F EV/EBITDA of 13x is currently on parity with its 3-year average, while providing a fair dividend yield of 4%.

Source: AmInvest Research - 19 Jun 2020