This article first appeared in The Edge Financial Daily on August 23, 2018
Maxis Bhd
(Aug 21, RM5.81)
Maintain hold with a lower fair value (FV) of RM5.65: We maintain our “hold” recommendation on Maxis with a discounted cash flow-derived FV of RM5.65 per share (from an earlier RM5.76 per share), based on a weighted average cost of capital discount rate of 7% and a terminal growth rate assumption of 2%, implying a financial year 2018 forward (FY18F) entreprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) of 11 times, one standard deviation below its three-year average of 12 times.
Our FY18F-FY20F earnings have been lowered by 6%-7% from a 5% cut in the group’s home fibre revenue assumptions. This stems from Maxis repricing its fibre broadband plans for both consumers and businesses with unlimited data quotas and offering speeds of up to 100Mbps at prices 36%– 65% lower than previous similar plans beginning from Sept 13 this year.
The 100Mbps plan comes with unlimited voice calls and a free DECT phone, while customers who take up the 30Mbps plan can choose to add this feature.
For consumers, the price of the 100Mbps plan will be lowered to RM129 per month at RM1.29/Mbps, and 30Mbps for RM89/month at RM2.97/Mbps. Currently, the 100Mbps plan is priced at RM299 per month and the 30Mbps plan at RM139 per month while the more affordable package at RM119/month provides speeds of up to 10Mbps.
For business customers, Maxis will lower the price of the 100Mbps plan to RM139 per month at RM1.39/Mbps, and 30Mbps for RM99 per month at RM3.30/Mbps. Currently, the 100Mbps business package is priced at RM398 per month or RM3.98/Mbps.
As a comparison, Unifi aims to raise the speed of its RM139 per month package from 30Mbps to 300Mbps at RM0.46/Mbps, while the more affordable proposition at RM79 per month (with a quota of 60GB) at 30Mbps for households earning below RM4,500 per month.
Unifi, meanwhile, is raising its RM329 per month plan from 100Mbps to 800Mbps at RM0.41/Mbps. As such, it appears that Unifi offers more attractive packages when its new plans come into effect.
Time dotCom offers its 100Mbps package for RM149 per month or RM1.49/Mbps for high-rise, commercial and dense populations.
Maxis is offering this new deal even though the mandatory standard on access pricing structure, which will reduce the wholesale prices for third-party operators to access its highspeed broadband network, has yet to be finalised.
However, we understand that the negotiations are at the final stages and the parties have clarity on the final pricing, which should still be value-accretive for Maxis’ home fibre segment, complementing the group’s core cellular business.
Meanwhile, we expect higher down-trading activities as customers opt for the lower priced packages at these new higher speeds amid an increasingly competitive fixed broadband market. Currently, the stock’s FY18F EV/Ebida of 11 times is almost at parity to its three-year average, while dividend yields are decent at 3%. — AmInvestment Bank, Aug 21