• Keep NEUTRAL, new MYR3.78 DCF TP from MYR4.03, 7% downside, 5% prospective yield. With the inking of the 5G access agreement (AA) underway, Maxis is set to unveil 5G services in a matter of weeks. We see little incremental 5G revenue in the medium term (based on patchy adoption thus far by the market), with competition likely to intensify. Our earnings forecasts are adjusted to factor in the wholesale cost. Our TP includes a 2% ESG premium.

• 5G AA to be inked post EGM. Maxis announced that it intends to enter into a 5G AA with Digital Nasional (DNB) and will be seeking shareholder approval at an EGM. The outcome is to be expected, and in line with our view post a recent meeting with management. We expect the EGM to be held by end-August, with the commercial 5G rollout shortly thereafter.

• Maxis forking out 25% more in wholesale costs based on tiered volume commitment. As with its peers that entered AAs with DNB last October, the agreement is for a period of 10 years (minimum service term). Maxis will incur a higher wholesale fee (25% more than its peers) of MYR360m pa (MYR30m/month) based on the MYR30,000/Gbps/month price levied by DNB on a committed volume/capacity of 1,000GBps/month. The latter is higher than the 800Gbps minimum capacity payment for AAs inked by 31 Oct 2022.

• Earnings impact. Based on the above, we estimate the wholesale charges will lower Maxis’ FY23-25F core earnings by 1-17.5%, and our DCF-derived TP drops to MYR3.78, with little incremental revenue from 5G due to the lack of consumer/retail use cases. There are, however, upside risks to earnings and TP from cost savings arising from the decommissioning of its 4G network in the longer term, and stronger-than-expected monetisation of 5G services. Management previously said it saw little impact on subs acquisition/retention from the delay in 5G rollout.

• Exit clauses now explicit. Explicit in the AA is the right for Maxis to terminate the AA: i) if DNB ceases to be a single 5G wholesale provider (SWN), or ii) another operator/entity is entitled to provide 5G wholesale services, at a date determined by the regulator, or (iii) before 1 Jan 2028 (sixth contract year) without liability. Given the Government’s decision for a second 5G wholesale network (Entity B) in early 2024 after DNB attains 80% population coverage, Maxis could cease the AA agreement earlier.

• Key risks: Competition, weaker-than-expected earnings and/or dividends, higher-than-expected capex and regulatory setbacks. On management’s narrative on growth capex (fiber investments and 5G), we expect the latter to remain elevated in the medium term, which could come at the expense of dividend payouts.

Source: RHB Research - 17 Jul 2023