• Maintain NEUTRAL and DCF-based TP of MYR3.90, 1% upside with c.5% FY24F yield. Maxis will double down on its cost rationalisation efforts with continued fibre investments. Enterprise growth will be based on tie-ups and partnerships to keep cost-to-serve low. Uncertainties remain on the policy shift to a second 5G network, which would have implications on the group’s dividend prospects and capex, in our view. Our TP includes a 2% ESG premium, based on our proprietary scoring model. Key risks: Competition, weaker-than-expected earnings and higher-than-expected capex

• Cost rescaling. Maxis will double down on operational improvements and efficiencies as a part of its 3-year cost rationalisation programme. Greater cost agility is required due to the change in the operating and regulatory environment, with a more tactical acquisition strategy adopted. Management sees further opportunities to snare market share, as its larger peer is distracted by network integration. The group’s core connectivity business remains the focal point of its overall strategy, with a more refined narrative communicated in due course.

• FMC strategy key; stepping-up fibre investments. Being the largest access seeker on Telekom Malaysia’s (TM) high-speed broadband or HSBB network and with the new wholesale agreement inked last December with an improved service-level clause, management sees greater upside to its fixed-mobile convergence or FMC strategy. While Maxis does not disclose the percentage of mobile customers on fibre services, we believe this has risen considerably since the pandemic days, with 4G broadband wireless access service as back-up used as a product differentiator. More specifically, bundling has contributed to a significant reduction in churn, as competition stays tight.

• Re-prioritising enterprise. While the enterprise business remains in focus, Maxis will anchor the growth on tie-ups and partnerships to keep its cost-to- serve low. Management does not rule out inorganic pursuits in the area of cyber-security – dubbed as “the missing link” in the group’s enterprise offerings – as heightened concerns over data security has fuelled the demand for managed security solutions. While the benefits of digitalisation are well touted, deeper engagements are required to better understand the needs of customers.

• Dividend outlook clouded; keeping gunpowder dry. With the uncertainty as to the potential investments in the second 5G network (contingent on the outcome of its investment in Digital Nasional), we see the group maintaining its conservative stance on dividend payouts (recurring payout guidance at 75% of core PATAMI).

Source: RHB Research - 16 Jan 2024