• Hold call on Maxis maintained, with a reduced EV/EBITDA-based target price of RM4.26 (previously RM4.60).

• The new broadband prices are neutral to our estimates and market structure, in our view; we maintain our view that Maxis will operate second 5G network.

• At FY24F adj. EV/EBITDA of 10.5x and P/E of 24x, upside to the valuations are capped, we think, with a 4.4% dividend yield providing downside support.

Broadband Pricing Resolved – Status Quo

We see Maxis’ fibre broadband pricing announcement on 27 Oct bringing to a close the uncertainty around the fibre broadband market. With price points similar to Telekom Malaysia’s pricing (see Fig 4), we believe fears of an increase in broadband pricing competition has also eased. Against this backdrop, we maintain our forecasts for Maxis’ broadband revenues, with a 14% FY22-25F CAGR.

5G Clarity Still Ahead

As we understand, operators are still evaluating the various 5G options in front of them and have yet to come to a conclusion on ownership structures etc. In the nearer term, the government is looking into the imposition of additional fees for consumers to access the 5G network. In the case of Maxis, it has imposed its own fee of RM11/month, although rebates are provided, which largely remove the added fees. The operators are understandably charging for 5G network access as they need to pay Digital Nasional Berhad (DNB) for the access. However, we believe that once the ownership structures for DNB are concluded, and these 5G network access costs are internalised, the 5G “premium” for consumers would be removed. With 5G network coverage at 70.2% as at end-Sep 2023 and adoption rate at 7.4%, according to the Minister of Communications, the actual impact of surcharges and rebates on operators is insignificant, in our view.

Valuations Are a Drag

We reiterate our Hold call on Maxis with a reduced target price of RM4.26, based on 10.8x FY24F EV/EBITDA, (-1 s.d. post-2010 range), following a reduction in our core net profit and DPS estimates (see Fig 1). Without an acceleration in earnings, we see Maxis’ 10.5x adjusted FY24F EV/EBITDA providing limited upside. Meanwhile, a 4.4% FY23-24F dividend yield provides downside support. Key upside risks would come from an acceleration in revenue/earnings growth, while slower earnings and a reduction in dividends would be key downside risks, in our view.

Source: CGS-CIMB Research - 7 Nov 2023