KUALA LUMPUR (Nov 11): Maxis Bhd (KL:MAXIS) could potentially collaborate with U Mobile Sdn Bhd, or even acquire a stake in the mobile operator, which recently won the bid to lead the country’s second 5G network, said PublicInvest Research.

The research firm said in a note on Monday: “We believe Maxis could still partner with U Mobile and perhaps, take up part or all of the 28.3% stake available for sale by its current major shareholder, Straits Mobile Investments (currently holding a 48.3% stake in U Mobile)”.

Notably, U Mobile is expected to reduce its foreign shareholding to 20%, to be aligned with its commitment to ensure greater Malaysian control of the telecommunication network, which is seen as a national strategic asset.

“Given the capital intensity of 5G deployment and U Mobile’s high borrowing, we believe it needs a strong strategic partner to share out the cost of 5G investment,” added PublicInvest.

PublicInvest said this as U Mobile requires a solid strategic partner to help share the financial burden of its 5G investment, due to the high costs and significant borrowings associated with 5G deployment.

“U Mobile is expected to reduce its foreign shareholding to 20%, to be aligned with its commitment to ensure greater Malaysian control of the telecommunication network, which is seen as a national strategic asset. Given the capital intensity of 5G deployment and U Mobile’s high borrowing, we believe it needs a strong strategic partner to share out the cost of 5G investment,” the research house explained.

Maxis has remained quiet about its options, but according to Apex Securities Research, the company is projected to incur RM360 million annually in 5G access fees under its existing agreement with Digital Nasional Bhd (DNB).

Since the announcement of the second 5G network, Maxis’ shares have dropped over 6% this year. As of Monday, the stock rose by two sen, or 0.56%, to RM3.59, giving the company a market capitalisation of RM28.2 billion.

Maxis’ net profit for the third quarter ended Sept 30, 2024 (3QFY2024) increased by 28% year-on-year, in line with consensus estimates. Bloomberg data shows that 15 analysts have a “hold” recommendation on the stock, six have a “buy”, and one has a “sell” recommendation. The 12-month target price stood at RM3.89.

Bloomberg’s consensus estimates indicate Maxis will report a net profit of RM1.4 billion for the financial year ending Dec 31, 2024 (FY2024), on a revenue of RM10.39 billion. For FY2025, the company is expected to achieve a net profit of RM1.48 billion, with a revenue of RM10.66 billion.

Meanwhile, MIDF Research noted that Maxis continues to deliver commendable earnings performance, despite operating in a highly saturated market with intense competition on pricing, data quotas, and speed offerings.

“In particular, the postpaid segment remains the group’s best performance segment in absolute terms. Nevertheless, the home connectivity, and fixed and solutions segments continue to show favourable progress. We expect the positive momentum, especially [of] the latter, to persist as the group expands its offerings, such as providing fixed connectivity service for data centres and GPUaaS.

“The group’s cash flow position is also much stronger due to the efficient capital working management. This can be seen from the careful spending in capital expenditure (capex),” it added.

While Maxis’ cash flow has improved considerably, MIDF believes that the company takes a conservative approach in its dividend payout to prepare for any eventual increase in capex in view of 5G.

“Notwithstanding this, we view that at this juncture, the group already has the capability to revert to its original quarterly dividend payout of five sen per share,” it added.