PETALING JAYA: A potential merger between Maxis Bhd
and U Mobile Sdn Bhd could weigh on earnings and dividends in the near term.
However, the corporate exercise may improve pricing discipline and profitability across Malaysia’s mobile telecommunications industry over the longer term, according to Hong Leong Investment Bank (HLIB) Research.
Bloomberg reported the companies’ owners were reviving plans to combine the two operators, with Maxis having asked selected banks and law firms to submit proposals and potentially appointing advisers shortly.
The renewed discussions could gain traction following reports that U Mobile’s owners are now seeking a valuation of around RM10bil, down from RM14bil previously, and narrowing the gap with Maxis’ previous offers.
HLIB Research said the lower valuation could make a transaction more palatable, although an agreement remains uncertain.
“The lower ask falls within Maxis’ earlier offer range and, in our view, raises the probability of a deal,” HLIB Research said.
Earlier discussions reportedly stalled over valuation, with U Mobile’s owners seeking RM14bil against Maxis’ offers of RM10bil-RM12bil.
“If the merger materialises, we believe the near-term implications would be negative, given capital expenditure or capex for fifth-generation (5G), weaker earnings and dividend pressures for both Maxis and CelcomDigi Bhd,” HLIB Research said.
“But, beyond that, the prospect of a market repair in a two-player market is strong because the aggressive price competitor – U Mobile – is being absorbed, which should reinforce pricing discipline in the market,” it added.
HLIB Research noted that a combined entity would have close to 19 million subscribers, based on Maxis’ nearly 10 million subscribers in the second quarter of 2026 and U Mobile’s more than nine million in its last publicly reported figures. This would put it broadly on par with CelcomDigi’s 20.3 million subscribers.
Maxis could gain U Mobile’s nationwide 5G network, preserving network differentiation, while overlapping 4G infrastructure could eventually allow site rationalisation and lower network costs.
However, HLIB Research noted that such savings could take several years to materialise.
Maxis would also need to exit Digital Nasional Bhd or DNB, leaving CelcomDigi and YTL Corp Bhd to shoulder its cost base.
Regulatory approval could come with conditions, as seen in the Celcom-Digi merger, which required spectrum divestment, the sale of Yoodo and commitments to provide access to mobile virtual network operators.
Nevertheless, HLIB Research believes the longer-term benefits could outweigh the initial disruption, as absorbing U Mobile, the industry’s most aggressive price competitor, could reduce price competition and support more rational market behaviour.
Thailand’s mobile industry offers a precedent, it noted.
Following the merger of True and dtac in March 2023, average revenue per user or Arpu rose by about 8% to 9% for both Advanced Info Service (AIS) and True over the subsequent two years, equivalent to approximately 4% annually.
Earnings before interest, tax, depreciation and amortisation margins expanded by about six percentage points at AIS and seven percentage points at True, driven by merger synergies.
“Notably, the non-merging incumbent benefited as much as the merged entity from the market repair,” the research house said.
HLIB Research maintained its “overweight” rating on the telecommunications sector, citing operators’ roles in broadband, 5G infrastructure and data centre deployments.
The research house said it was maintaining its “buy” ratings on Maxis and CelcomDigi, with target prices of RM4.45 and RM3.70, respectively, pending further developments and management updates at their results briefings scheduled for Nov 6 and Nov 19, respectively.
One analyst told StarBiz that a telecommunications consolidation could improve industry profitability over time, but operators must first navigate higher investment requirements and integration costs.
“Any potential merger will need to balance the benefits of reduced price competition against the risks of regulatory conditions and pressure on shareholder returns,” he said.
