Maxis kept at ‘hold’, fair value unchanged


AmIvest Research said given the uncertain impact from the Covid-19 pandemic, the company’s management was still not confident in providing a fresh guidance following the withdrawn expectation of a “flat to low single-digit increase” for both FY20F service revenue and normalised Ebitda

PETALING JAYA: AmInvestment Research is maintaining Maxis’ “hold” rating with an unchanged discounted cashflow (DCF) derived fair value of RM5.50 a share.

The research unit said in its report that this was based on a weighted average cost of capital discount rate of 6.3% and terminal growth rate assumption of 2%.

This implied an FY20F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of 13 times and was on par with its three-year average.

Maxis is initiating legal challenges to the Inland Revenue Board’s notice of tax assessment of RM140mil for disallowing interest expense deduction and penalties for FY16–FY17.

The telco is disputing the basis and validity of the additional assessment, which accounts to a substantive 10% of FY20F earnings, as well as submitting a stay order by the court.

“Compared to the corporate tax rate of 24% from 2016 onwards, we note that Maxis’ effective tax rates were 26.5% in FY16 and 24.3% in FY17 vs 29% in financial year 2015.

“However, we note that the group’s effective tax rate rose slightly to 25% in FY18 and FY19.

“Including the additional tax bill will raise the combined effective tax rate in FY16 and FY17 to 28%.

“As any impact is likely to be non-recurring, we maintain our FY20F–FY22F core earnings.

“Additionally, the group has indicated that there will not be any imminent financial impact pending the outcome of the legal proceedings, ” it said.

AmIvest Research said given the uncertain impact from the Covid-19 pandemic, the company’s management was still not confident in providing a fresh guidance following the withdrawn expectation of a “flat to low single-digit increase” for both FY20F service revenue and normalised Ebitda.

In the third quarter of fiscal 2020, Maxis’ overall subscribers still contracted by 618,000 quarter-on-quarter to 11.1 million.

This was due to a much larger reduction of 683,000 prepaid users to 7.4 million from SIM consolidation amid ongoing intense competition.

Additionally, the group’s home fibre average revenue per user (Arpu) slid RM2 month on-quarter to RM104 a month from new subscribers at a lower entry price.

Against the backdrop of intensifying competition in the cellular and fibre market, the stock’s forecast financial year 2021 EV/Ebitda of 12 times is slightly below its three-year average of 13 times, while providing a fair dividend yield of 4%.

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