• We maintain our HOLD recommendation on Maxis with unchanged forecasts and a DCF-derived fair value of RM6.22/share, which implies an FY17F EV/EBITDA of 12x at parity to its 3-year average.

• Maxis has completed the private placement of 300mil new shares at the price of RM5.52/share, representing a 9% to the weighted average of the past of 5 market days and a 6% discount to the closing price last Friday.

• As we have highlighted yesterday, the RM1.7bil placement, conducted via book-building exercise by CIMB and Credit Suisse, will not have a significant impact to Maxis’ EPS as the interest cost savings at an average rate of 5% from the proceeds would mostly offset the dilution arising from the 4% expansion of Maxis’ share base.

• The main reason for the exercise was to de-gear, as the group’s FY17F net debt/EBITDA has improved from 1.8x to 1.5x. This provides the sufficient leverage to fund improvements to its service quality and prepare for future spectrum assignment fees, mainly the much sought-after 700MHz band and subsequently, the re-farming of the 2600MHz band.

• As highlighted in the past, we continue to caution that Maxis may also opt to reduce its dividend payout, which declined to 75% in 1QFY17 and FY16 from 86% in FY15. Recall earlier this year, Axiata, which had a net debt/EBITDA of 2x, cut its dividend payout from 85% to 50% for the next 2 years.

• For now, we maintain our DPS assumptions, based on 65% of Maxis’ free cash flows, which translate to a reasonable yield of 3%. Nevertheless, there is a risk that prospective dividend payouts may be lowered on higher-than-expected capex or spectrum fees.

• The revenue trajectory for Maxis remains unexciting given the continued price wars being waged by its peers. Against the backdrop of high rotational churn and price-focused competition, management maintains its guidance for a FY17F flat normalised EBITDA.

• Since 2Q2015, Maxis’ prepaid subscriber base has fallen by 1.2mil or 12% with no end in sight yet for the haemorrhage.

• In mitigation, we note that even with Maxis’ higher priced packages vs. its peers, the group still managed to add postpaid customers by 22K to 3mil with its best-of-class customer experience and service connectivity.

• The stock’s FY17F EV/EBITDA of 11x is almost at parity to its 3-year average, while dividend yields are decent at 3%.

Source: AmInvest Research - 21 Jun 2017