Investment Highlights

• We maintain our HOLD recommendation on Maxis with a DCFderived fair value of RM5.65/share (from an earlier RM5.76/share), based on a WACC discount rate of 7% and a terminal growth rate assumption of 2%, implying an FY18F EV/EBITDA of 11x, 1SD below its 3-year average of 12x.

• Our FY18F-FY20F earnings have been lowered by 6%-7% from a 5% cut in the group’s home fibre revenue assumptions. This stems from Maxis repricing its fibre broadband plans for both consumers and businesses with unlimited data quotas and offering speeds of up to 100Mbps at prices 36%– 65% lower than previous similar plans beginning from 13 September this year.

• The 100Mbps plan comes with unlimited voice calls and a free DECT phone, while customers who take up the 30Mbps plan can choose to add this feature.

• For consumers, the price of the 100Mbps plan will be lowered to RM129/month at RM1.29/Mbps, and 30Mbps for RM89/month at RM2.97/Mbps. Currently, the 100Mbps plan is priced at RM299/month and 30Mbps plan at RM139/month while the more affordable package at RM119/month provides speeds of up to 10Mbps.

• For business customers, Maxis will lower the price of the 100Mbps plan to RM139/month at RM1.39/Mbps, and 30Mbps for RM99/month at RM3.30/Mbps. Currently, the 100Mbps business package is priced at RM398/month or RM3.98/Mbps.

• As a comparison, Unifi aims to raise the speed of its RM139/month package from 30Mbps to 300Mbps at RM0.46/Mbps while the more affordable proposition at RM79/month (with a quota of 60GB) at 30Mbps for households earning below RM4,500/month.

• Unifi meanwhile is raising its RM329/month plan from 100Mbps to 800Mbps at RM0.41/Mbps. As such, it appears that Unifi offers more attractive packages when its new plans come into effect. Time dotCom offers its 100Mbps package for RM149/month or RM1.49/Mbps for high-rise, commercial and dense populations.

• Maxis is offering this new deal even though the Mandatory Standard on Access Pricing (MSAP) structure, which will reduce the wholesale prices for third-party operators to access its highspeed broadband (HSBB) network, has yet to be finalised.

• However, we understand that the negotiations are at the final stages and the parties have clarity on the final pricing, which should still be value accretive for Maxis’ home fibre segment, complementing the group’s core cellular business.

• Meanwhile, we expect higher down-trading activities as customers opt for the lower priced packages at these new higher speeds amid an increasingly competitive fixed broadband market. Currently, the stock’s FY18F EV/EBITDA of 11x is almost at parity to its 3-year average, while dividend yields are decent at 3%.

Source: AmInvest Research - 21 Aug 2018