Investment Highlights

• We maintain Maxis’ HOLD rating with an unchanged DCF derived fair value of RM5.00/share. This is based on a WACC discount rate of 6.3% and terminal growth rate assumption of 2%, which reflects a neutral ESG score of 3 stars. This also implies an FY20F EV/EBITDA of 12x and is on par with its 3- year average.

• Our forecasts are maintained following Maxis’ mid-year investor briefing yesterday with its CEO Gokhan Ogut. These are the salient highlights:
   
  • The group’s strategy in providing converged solutions involves accelerating fibre penetration in line with the government’s National Fiberisation and Connectivity Plan to position its brand as the preferred partner to all types of businesses. This also involves expanding digital channels for sales, distribution and service while maintaining its pole position in network connectivity.
     
  • Against other cellular operators (celcos), Maxis has achieved critical size and scale in converged solutions with an end FY22F target to fiberise 300K premises (up 3x from current 100K), leveraging its leading market share in both prepaid and postpaid segments. Recall that Maxis has the highest revenue market share of 41.1% in postpaid segment and 37.3% in prepaid division amongst the top 3 celcos.
     
  • Presently, 62% of Maxis’ mobile sites have direct fibre in key market centre areas while 92% are directly connected to fibre or single-hop to fibre. The group’s fixed broadband service coverage has reached over 4.2mil homes and premises, of which 93% are covered by fixed wireless broadband.
     
  • Even with TM, which mostly owns the fibre network to end customers and offers attractive packages currently, Maxis has managed to increase its 1QFY21 fibre revenue market share by 0.4 percentage point QoQ to 16.1%. This was supported by a 5.8% QoQ increase in 1QFY21 broadband connections to 603K, of which fibre accounts for 77%.
     
  • The group will continue to expand its Hotlink prepaid base among the youth segment, value seekers, B40 segment and foreign workers while building its postpaid division with family-based plans bundled with fibre and handset options. Maxis will offer new consumer solutions involving TV, gaming, digital home services and financial services.
     
  • The next phase for Maxis will focus on structural cost changes and cost efficiency to improve productivity by combining major cross-functional initiatives, optimisation, acquiring new capabilities and operating model changes. This could involve cloud partnerships, digital solutions for e commerce, analytics and payments for corporates and small medium enterprises as well as positioning for 5G enterprise opportunities. 
    Recall that the group has entered into a strategic partnership with Petronas Dagangan early this year to provide converged solutions on safety, security, business sustainability, big data and advanced analytics for a hyper personalised and enhanced retail experience at Petronas stations.
     
  • Under the current movement control order (MCO) 3.0, management does not expect as severe an impact as 2QFY20, where normalised net profit declined by 5% QoQ during the first MCO. This is expected to be mitigated by the group’s expanded online and digital payment apps which facilitate subscription renewals together with the increase in work from-home driven data demand that support the upward trajectory in fibre-to-home users.
     
• Amid a matured cellular market with intense competition and tepid revenue growth prospects, the stock’s FY21F EV/EBITDA of 12x is currently on par with its 3-year average, supported by a decent dividend yield of 3%.

Source: AmInvest Research - 15 Jun 2021