5-Year (2018-2023) Strategy in Motion

To recap, it has been close to a year since Maxis embarked on its 5-year (2018- 2023) strategy which aims to transform the group from a consumer and mobile-centric telco to Malaysia’s leading converged communications and digital services company. Essentially, the strategy involves driving growth from enterprises via the offering of converged solutions in areas such as fixed connectivity, managed services, cloud services, and IoT solutions which altogether is an addressable ICT market estimated to be worth RM20-25bn while maintaining leadership in mobile connectivity. And to support this, management has earmarked CAPEX of RM1.0bn over 3 years.

Internal Targets Reaffirmed, Unperturbed by Competition.

Management reaffirmed that alongside the strategy, internal targets are for service revenue to exceed RM10.0bn by 2023 which against FY18’s service revenue of RM8.1bn, at the very least implies a 5-year CAGR of 4.4% and ~8- 10% market share of the RM20-25bn addressable ICT market aforementioned. Management also believes that the target is not a tall order considering that the existing converged solutions offered by Maxis are ahead of the curve, and while peers have been hopping on the bandwagon, they are of view that it will take some time for them to catch up.

More Details on Enterprise Business

Shedding further light on the enterprise business, management alluded that the key verticals being targeted include the agriculture, government, logistics, manufacturing, and financial services sector. We also note that with the solutions offering the value proposition of increased productivity and cost savings, it has brought about new revenue models such as one whereby Maxis is entitled to have a share in the cost savings delivered. Meanwhile, to accelerate growth, management reiterated that there are more strategic partnerships to come, further to the one the group recently forged with Cisco, a leading global IT company. That said, we also note that the scarcity of talent has been a key challenge for the group as it is still looking to beef up its headcount for the enterprise business following the recent recruitment of over 350 employees.

Impact

While we are encouraged by management’s efforts to drive growth from enterprises, we have maintained our estimates with forecast low-single digit service revenue growth of 0.9%/1.0% in FY20/FY21 until meaningful traction is evident. Note that while contributions from the enterprise business are not disclosed, it is smallish relative to the group’s overall bread and butter mobile business.

Valuation & Recommendation

In all, we maintain our Sell recommendation on Maxis with an unchanged TP of RM4.80/share based on DCF valuation with a WACC of 7.6% and LT growth rate of 1.0%. Our bearish stance on the stock is premised on the group’s subdued near-term earnings prospects and unexciting forward dividend yields of 3.7% across FY19-FY21. Upside risks include strong traction with the 5-year strategy while downside risks include heightened price competition and regulatory changes.

Source: TA Research - 1 Nov 2019