KUALA LUMPUR (Oct 29): CIMB Research has revised the capital expenditure (capex) assumption for Maxis Bhd to RM1.3 billion from RM1.1 billion for financial year 2015 (FY15), and forecast a higher capex of RM1.2 billion from RM1.1 billion for FY16, as the group competes with other major telco players to establish data network superiority.

The research house said in a note to clients that the revised capex assumptions negatively impact its dividend per share (DPS) forecast, as it assumed Maxis will pay dividends based on free cash flow.

"We have maintained our capex forecast at RM1 billion per annum for the remaining discounted cash flow (DCF)-period," CIMB Research analyst Foong Choong Chen said in the note.

The research house added that it reduced its FY15 and FY16 DPS by 10.1% and 4.4% respectively.

"Despite factoring in higher capex in FY15–16, we have maintained our discounted cash flow (DCF)-based target price at RM6.70 (weighted average cost of capital [WACC]: 70%) because the impact is only three sen per share," Foong added.

He also noted that Maxis is least likely to be impacted by more intense prepaid competition as it is gaining market share.

Foong said that during a conference call with chief executive officer Morten Lundal and chief financial officer Nasution Mohamed, the group noted that it is not too concerned about its post-paid subscriber net loss over the past two quarters, as it has been able to mostly keep its high-end customers.

"At a high level, Maxis says the goods and services tax (GST) rebate for Malaysian prepaid subscribers in FY16 will be shared between the government and telcos, though the exact mechanism has yet to be defined," Foong said.

He added that Maxis acknowledges the wide gap in its post-paid plan prices versus that of its competitors and will leverage on its network superiority to command a premium, instead of just competing "head-on" in terms of prices.

"[It will also] offer bundled fiber/IPTV streaming services and keep its customers happy with excellent service and support. Nevertheless, it says that it will respond accordingly if the premium to its peers' prices is too wide," said the analyst.

CIMB Research also added that Maxis had improved its 4G network coverage to 55% in third quarter of FY15 (3QFY15), compared to 41% in 2QFY15 and 39% in 1QFY15.

"Meanwhile, its network modernisation is now 83% complete, compared to 81% in 2QFY15," the research house said.

Furthermore, the research house said that Maxis' 3QFY15 results were largely in line with its expectations, with 9MFY15 at 77%/74% of its FY15 estimates, while it also expected the group to declare a dividend of five sen per share for the quarter.

(Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)