News

Maxis has received a notice of spectrum reallocation of the 900 MHz and 1800 MHz bands, which will reduce the spectrum available to 2x10 MHz (from 2x16MHz previously) and 2x20MHz (from 2x 25MHz previously), respectively.

Maxis noted MCMC’s decision to convert the annual Apparatus Assignment fee to an upfront Spectrum Assignment fee results in long-term certainty for the spectrum.

The group also understand that the authority has an intention to reallocate other spectrum bands, which include the 700MHz, 2300MHz, and 2600MHz bands.

Comments

The spectrum reduction on Maxis’ 900MHz and 1800MHz bands is well within our as well as the market expectations.

While the management is reluctant to share any immediate guidance (and cited will only provide details guidance in conjunction with its 4Q15 result release dated 4th February) on its operational/capex post the spectrum reallocation, we believe the lower spectrum allocation could lead to higher capex (as a result of more sites and equipment needed to maintain the similar coverage as well as capacity) moving forward.

Nevertheless, we do not discount that management may opt to smooth its capex plan and maintain the current annual capex allocation at about RM1.2b- RM1.3b range. This, however, could potential dampen subscribers’ experience and provide lesser competitive advantages under the stiff competition environment.

To sail through the challenging wave, we reckon the group need to optimise and manage its spectrums' portfolio further to enhance operational efficiency.

Outlook

Competition is expected to remain intensified in view of the stronger key rivals (i.e. Digi and U Mobile) ahead. The additional spectrums' allocation (especially the 900MHz band) would allow Digi and U Mobile to strengthen their network coverage and quality further and pose a great challenge to Maxis moving forward.

Forecast

We leave our FY15/16E earnings unchanged for now pending the upcoming 4Q15 results review.

Rating

Maintain MARKET PERFORM

Valuation

Maintained TP at RM6.31, based on an unchanged targeted FY16 EV/fwd. EBITDA of 13.1x, representing a -0.5x standard deviation below its 4- year’s mean.

Risks to Our Call

Competition intensifies and subscribers’ churn.

Source: Kenanga Research - 3 Feb 2016