PETALING JAYA: Maxis Bhd
’s subdued near-term capital expenditure allows room for gradual dividend hikes and balance sheet deleveraging, according to Hong Leong Investment Bank (HLIB) Research.
The research house said Maxis can gradually raise its dividend per share back to 20 sen per share from 17 sen in financial year 2024 (FY24), as the dual 5G networks policy development is still pending.
“Excess free cash flow could be directed towards deleveraging, reducing its net debt-to-earnings before interest tax depreciation and amortisation ratio from 2.4 times in the FY23 to 2.0 times by FY25.
“This demonstrates prudent balance sheet management, especially considering the possibility of re-leveraging when Maxis may need to participate in some form of 5G network rollout in the future, or even restructuring of Digital Nasional Bhd (DNB) shareholding,” said HLIB Research.
The research house upgraded the stock from “hold” to “buy”, with a slightly higher target price of RM3.90 a share.
Maxis shares closed at RM3.42 in yesterday’s trading.
HLIB Research said Maxis’ 5.0% net dividend yield offers downside support, which is appealing amid heightened volatility in the market currently.
It added that the uncertainties regarding the 5G network rollout are largely priced in, and believes this overhang will be resolved once visibility emerges.
Since the second half of 2024, Maxis share price has declined by almost 21% from its peak, largely reflecting ongoing uncertainties concerning the second 5G network rollout, where U Mobile has been selected to lead.
It echoes the 2022 sell-off, when regulatory uncertainties tied to the government-mandated DNB 5G single network model pushed Maxis share price to a multi- year low by mid-2022 (-31%).
Following the eventual resolution of the DNB saga, Maxis’ share price staged a 45% rebound over 11 months, it said.
The catalyst for a rebound is for the second 5G network uncertainties to dissipate, which can come in a few ways, HLIB Research added.
“Details on U Mobile’s 5G network rollout will emerge once its initial public offering (IPO) draft prospectus is released, potentially easing market concerns.
“We feel the market has been somewhat bearish over the current scenario, presuming a disruptive impact from U Mobile’s ‘go-it-alone’ rollout strategy (as it stands for now).
“However, from our perspective, the need for solid business propositions and investment case for its IPO fundraising makes a disruptive standalone scenario for U Mobile less likely.”
Instead, it said the prospect of U Mobile partnering with a larger operator makes a more compelling case, enhancing its IPO’s attractiveness while also mitigating risks, especially in current market volatility.
“We argue that Maxis-U Mobile makes the most sense, because it is the most balanced pair-up in terms of subscriber market share – Maxis 11 million plus U Mobile nine million versus Celcom DiGi Bhd’s 20 million subscribers.”
In terms of competition dynamics, HLIB Research said Maxis is more aligned with the premium segment compared to U Mobile’s focus on value-for-money segment.
It noted that competition among Malaysia’s mobile network operators remains rational with each focusing on defending against blended average revenue per user erosion.
Maxis’ focus remains on enhancing customer retention and brand stickiness, taking it further with the recent introduction of the Maxis Home Solar subscription service with a 10-year contract, compared to the typical two-year contract for fixed/mobile.
