Investment Highlights

• We maintain our HOLD recommendation on Maxis with an unchanged DCF-derived fair value of RM5.00/share based on an unchanged WACC discount rate of 6.3% and terminal growth rate assumption of 2%. This reflects a neutral ESG score of 3 stars, and implies an FY22F EV/EBITDA of 11x, below its 3-year average of 12x.

• Our earnings forecasts are maintained as we do not expect any significant impact from Maxis’ acquisition of the entire stake in MyKRIS Asia Sdn Bhd from Bursa LEAP-listed MyKRIS International (which has a current market cap of RM192mil) for up to RM158mil cash with completion expected by 1Q2022.

• The consideration will be paid via a base price of RM115mil and subsequent payments of up to RM42.5mil over 3 years depending on the attainment of revenue targets with RM55mil in year 1, RM65mil in year 2 and RM75mil in year 3.

• MyKRIS Asia is primarily a managed network service (MNS) provider, specialising in the provision, design and installation of high-speed wireless and wired network services, and international leased circuit services to enterprises.

• MyKRIS Asia operates predominantly in the Malaysian market, generating revenue mainly in the Klang Valley. Its operations in overseas markets include Myanmar, Singapore and Indonesia.

• MyKRIS Asia offers managed network and security services with an end-to-end field delivery and support team which includes 70 engineers and a track record of 20 years in the Malaysian managed network services (MNS) market involving global and local partnerships.

• The team of specialists are certified by global technology providers and include design, consulting, implementation, testing and audit augmented with a security and network operating centre.

• This acquisition is envisioned to enhance and integrate with Maxis’ existing MNS and hybrid network capabilities for wired and wireless connectivity for businesses, strengthening the group’s strategy to offer converged solutions.

• MyKRIS Asia’s revenue has risen by an average of 4% over the past 2 years to RM42mil FY March 2021 while its net profit doubled to RM8mil. Based on its FY21 net profit, the base purchase price of RM115mil and interest expense of 5%, we estimate negligible impact to Maxis’ FY22F earnings.

• However, if MyKRIS Asia’s revenue was to increase by 79% from FY21 to RM75mil in FY25 as indicated in the sale & purchase agreement, we estimate that its net profit could surge 3.7x to RM30mil assuming an annual cost escalation of 10%. Partly offset by interest cost on the full purchase price of RM158mil, this translates to 2% to Maxis’ FY24F earnings.

• Additionally, based on an EBITDA of RM15mil for FY March 2021 and the base purchase price, the acquisitive EV/EBITDA of 7.5x is slightly value-accretive given Maxis’ higher 12x currently.

• From a balance sheet perspective, we estimate minimal impact to the group’s FY22F net/ debt/EBITDA of 2.3x given Maxis’ huge net debt of RM9bil while the potential goodwill of RM82mil is relatively small vs. the company’s intangible assets of RM11bil.

• All in, we are mildly positive on this development given the expansion of the Maxis’ enterprise business (which currently accounts for 7% of 1HFY21 service revenue) with the fresh MNS and security capability that could have a slightly accretive impact to longer term earnings.

• The stock currently trades at a fair FY22F EV/EBITDA, near at its 3-year average, while providing a decent dividend yield of 3%.

Source: AmInvest Research - 14 Oct 2021