AmInvestment Research retains Hold call on Maxis, FV RM5.50

  • Analyst Reports
  • Friday, 19 Jun 2020

KUALA LUMPUR: AmInvestment Bank Research is retaining its Hold call on Maxis with an unchanged discounted casflow derived fair value of RM5.50 a share.

It said on Friday this was based on a WACC discount rate of 6.3% and terminal growth rate assumption of 2%, implying an FY20F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of 13 times, on par

with its three-year average.

The research house issued the report following a teleconference with management on Thursday. It maintained Maxis’ forecasts pending improved clarity from its 2QFY20 results next month.

AmInvest Research said Maxis was still gauging the country’s economic recovery from the Covid- 19 pandemic.

It said hence, management has yet to ascertain a timeline for a revised FY20F guidance given the impact on small businesses, severely affected sectors such as tourism and oil & gas, and

temporary closures of retail outlets as well as Maxis’ stores.

While relatively resilient compared to industrial/retail sectors, its management acknowledged that most of its business segments have been impacted by the viral outbreak, especially the prepaid

operation which has seen its subscribers declining since 1Q16.

“Given the impact of rival U-Mobile and mobile virtual network operators, Maxis was the first of the three largest incumbent operators to launch a prepaid package with unlimited data priced

at RM35 a month at speed capped at 3Mbps last week.

“Management intends to be the leader in this lower value segment, which accounts for 42% of 1QFY20 service revenue,” it said.

However, Maxis is awaiting the market’s response before introducing an unlimited data plan for the postpaid segment as the group believes that these subscribers are more concerned with faster speeds and handset deals paired with fibre promotions, which could mitigate migration to prepaid packages.

“The group is not able to provide guidance at this juncture on the Covid-19 impact on blended average revenue per user, which slid RM2 a month QoQ to RM49/month, given the promotional

incentives during the movement control order (MCO).

“Service revenue, which slid 3% QoQ in 1QFY20, will continue to be impacted by the government-mandated halving of mobile termination rates this year. However, Maxis will continue to focus on higher priced enterprise segments which offer

higher return versus that of retail customers.

“Maxis’ dividend payout, which was 104% in FY19, is being reviewed together with its operational and capital expenditure, focusing more on core network operations and growth projects with more immediate returns.

“Recall its earlier base capex of RM1bil and growth capex of RM1bil over three years.

“While not commenting on the spectrum award changes recently, Maxis prefers multiple operators with network-sharing arrangements for 5G rollouts compared with the government’s earlier plan to award to a single consortium to avoid

monopolistic pricing structures and administrative delays.

“The stock’s FY21F EV/Ebitda of 13 times is currently on parity with its three-year average, while providing a fair dividend yield of 4%,” it said.
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