• Keep NEUTRAL and DCF-derived TP of MYR4.03, <1% upside with 5% FY23F yield. We expect Maxis to ink the 5G access agreement (AA) soon, paving the way for a commercial 5G rollout. Market concerns are on its mid- term capex and dividend sustainability, with the former likely to remain elevated. Clarity on the new 5G wholesale model remains a key share price catalyst, in our view. Our TP includes a 2% in-house derived ESG premium.

• A matter of time. A meeting with Maxis Group CEO Goh Seow Eng has confirmed that the AA is a foregone conclusion. Significantly, we gather discussions are focused on aligning the wholesale agreement to reflect the policy shift (towards a dual 5G network). This portends lower access cost/outlay under modified terms, with the likelihood of a shorter tenure (vs a 10-year agreement) contracted in. Consequently, shareholder approval at an EGM – which typically takes 40-45 days – may be averted. Discussions, as we understand, are also factoring in certain conduct by mobile network operators (MNOs) with explicit terms and clauses forming part of the investment in Digital Nasional (DNB). This would see the MNOs divesting their equity stake(s) in DNB eventually for spectrum, in the second 5G network (Entity B).

• Defensive value in fixed mobile bundling. Management noted that the focus on convergence/bundling has led to a 90% reduction in mobile churn and a notable uplift on bundled ARPUs, as new value-added services are cross-sold. Ruling out direct content investments, management said the focus would be on partnerships, with direct carrier billing offered.

• Capex could surprise. Maxis’ 4G network is 5G-ready. While management’s current capex guidance implies a manageable capex/sales (ex-5G) of c.11%, the narrative on growth capex (ie fibre investments and 5G (depending on how Entity B plays out) suggests potentially higher capex intensity in the medium term, which could come at the expense of dividend payouts. Note that Maxis’ 1Q23 DPS of 4 sen was lower than the typical 5 sen run rate. We have retained our DPS estimate for now.

• No let-up in enterprise pursuits. Despite not offering outright guidance and targets, it has begun to see the fruits from enterprise seeds sowed (M&As) in recent years, with key wins across the public and private sectors. The pandemic has derailed some commercial pursuits, but enterprise revenue (ex-wholesale voice) grew by 9% in FY22 (+6% YoY in 1Q23), with ICT-typed revenue up 1.3x YoY in FY22. Going forward, the focus would still be on the SME segments, with converged solutions being advocated.

• Key downside risks are weaker-than-expected earnings and dividends, regulatory/policy setbacks and competition. The opposite of these would constitute upside risks.

Source: RHB Research - 7 Jul 2023