Risk-reward turns attractive; upgrade to Add
? TP cut by 8% to RM3.60 on higher risk-free rate, but upgrade from Hold to
Add as we think earnings risk from 5G wholesale fees is priced in.
? Maxis’s share price is down 28% YTD and is now even below its FV where it
has to pay DNB’s currently proposed 5G wholesale rates (Scenario 1).
? In Scenario 1, its EV/OpFCF is at a 12-year low, while dividend yield of 6.0%
(+0.8 s.d.) is a decent 182bp above the 10-year MGB yield.
Upgrade to Add; DCF-based TP cut by 8% to RM3.60 (WACC: 7.6%)
We lower Maxis’s TP by 8% to RM3.60 after raising the risk-free rate by 50bp to 4.5%
(due to the recent rise in Malaysian government bond yields); the former is still based on
a 20% discount to its DCF-based fair value (FV) of RM4.53 (ex-5G wholesale fees). We
upgrade Maxis from Hold to Add, given a total potential return of c.15%. Its share price is
down 28% YTD (-22% relative to FBM KLCI) and is now even below its FV where it has
to pay the current 5G wholesale rates (Scenario 1). Our earnings forecasts are
unchanged (i.e. ex-5G fees), pending better clarity/visibility. Downside risks: delays in 5G
final resolution, more intense mobile competition, weak Enterprise earnings (see Page 2).
FY22-32F core EPS & FCFE may be hit in Scenario 1…
For Scenario 1, we assume Maxis signs a 5G wholesale agreement with Digital Nasional
Bhd (DNB; Unlisted) based on its current offer, with no equity stake in DNB. Assuming
the wholesale agreement takes effect from 1 Jul 2022, we estimate Maxis’ FY22-32F
core EPS may be lower by 1.2-36.0% vs. our current forecasts (ex-5G). We expect this to
be partly offset by a substantial drop in 4G capex from FY25F onwards to just
maintenance levels by FY29F. Thus, its FY22-32F FCFE may be lower by 1.0-23.4% vs.
our current forecasts (ex-5G). Its DCF-based FV is RM3.57 in Scenario 1.
…but this has been more than priced in, in our view
While we expect Maxis’s earnings to get hit in Scenario 1, we believe this has been more
than priced in as its EV/OpFCF is now at the bottom of its 12-year trading band even if
stretched out to end-FY24F (see Fig 3). We think Maxis should also be able to sustain
FY22-24F DPS at 20 sen p.a., as we project its FCFE/share at 20-23 sen. This puts its
dividend yield at 6.0%, or well into the upper half (+0.8 s.d.) of its 12-year range and a
decent 182bp above the 10-year Malaysian government bond (MGB) yield (see Fig 5).
FY22-24F core EPS may be better in Scenario 2 vs. Scenario 1
For Scenario 2, we assume Maxis takes up an 11.7% stake in DNB for RM200m and that
wholesale fees are based on actual traffic (instead of sites rolled out) in 2022-24F.
Maxis’s FY22-24F core EPS may be hit by a smaller 1-6% (Scenario 1: 1-19%) and
FCFE/share may also be higher at 20-25 sen (Scenario 1: 20-23 sen), but its FV may not
be much changed at RM3.57, as wholesale fee discounts (only for 2022-24F) are offset
by the investment in DNB. However, if we assume DNB also offers a 20% discount on
wholesale fees from 2025F, its FV would be higher at RM3.94, based on our estimates.