Investment Highlights

• Reiterate our HOLD recommendation on Maxis with an unchanged DCF-derived fair value of RM3.90/share (WACC: 8.4%, terminal growth: 2%) (Exhibit 8). This implies FY23F EV/EBITDA of 10.5x, below its 3-year average of 12x.

• We recently organised a site visit to Maxis’ contact centre, the heart of the company’s customer engagement, at Sunway Pinnacle. During our visit the company reiterated its MAX strategy (comprising i) Maxis For All, ii) Achieve Unmatched Personalised Experience (UPE), and iii) Maxis Way) and showcased its progress made over the years:
  i. Maxis For All: Fibre – To maintain its leadership within the converged solutions space, the group emphasises on customers’ fibre experience, especially WiFi, to differentiate from competitors. The initiative is being forefronted by its in-house client-facing technical support team, the Maxpert.
  Maxis’ technical support team is equipped with the bestin-class tools which allow them to attend to customers’ issues pre-site visits, on-site, as well as remotely (Exhibit 1). Besides that, to ensure resources are well utilised and reduce customer service response time, the work order allocation is automated and optimised through a zoning system which reduces technical support travelling time.
  Going the extra mile to ensure its customers have the best WiFi experience, Maxis also provide additional features such as WiFi & router management and incident notification to its fibre customers (Exhibit 2). The group’s customer-focus strategy and its early-mover advantage is bearing fruits with the growing base of its fibre service subscribers, rising 3x over the past 4.5 years (Exhibit 3).
  ii. Achieving UPE: Customer Experience – During our visit, Maxis showcased its newly minted MaxBOT which enable customers to do basic transactions through Whatsapp platform (Exhibit 5). This allows faster response while giving options to consumers that prefer the non-voice call option.
  To achieve its Digital Care Ambition, Maxis plans to scale up MaxBOT by providing multichannel options besides leveraging on visual interactive voice response and digital self-diagnostics capabilities (Exhibit 4).
  iii. Maxis Way: XLR8 – As part of Maxis operating expenditure efficiency initiative, XLR8, the company has expanded its data analytics capability to better assess customers’ credit profiles through an internal credit scoring model while leveraging on credit rating agency’s rating evaluations. This allows Maxis to target a wider customer base, especially for its Zerolution offerings and reduce default rates (Exhibit 7).

• Separately Maxis has officially opted out from becoming Digital Nasional’s (DNB) shareholder and this bode well for the company, in our view. Given that the government-linked DNB does not have a profit-driven mandate, the acquisition of equity stakes is deemed earnings dilutive. The participating telcos likely will share the same commercial rationale as Maxis in ensuring an optimal 5G access pricing level and service quality standards. A 12.5% equity stake in DNB could set a participating telco back by RM179mil.

• We revise upwards our FY22F earnings by 11% to reflect the delay in recognition of network cost from 5G wholesale capacity charges, while trimming FY23F by 5% and FY24F by 4% on housekeeping exercise.

• Valuation-wise, the stock currently trades at FY23F EV/EBITDA of 10x, below its 3-year average of 12x. We believe the discount is justified given the downside risk to earnings following the deployment of the 5G network via Digital Nasional Berhad’s (DNB) single wholesale network.

Source: AmInvest Research - 12 Oct 2022