Thursday 28 Mar 2024
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KUALA LUMPUR (Dec 11): CGS-CIMB Research has maintained its "reduce" call on Maxis Bhd at RM5.13 with a lower discounted cash flow (DCF) based target price (TP) of RM4.90 (from RM5.40) post earnings revision but partly cushioned by a lowering of its risk-free rate assumption from 4% to 3.5%.

In a note dated Dec 10, the research house said it cut its FY19/20/21F core earnings per share (EPS) by 2.4%/4.1%/9.9% respectively mainly due to lower mobile, Home Fibre and Fixed Enterprise revenue and higher depreciation cost.

"Post revision, we see EBITDA (earnings before interest, tax, depreciation and amortisation) rising 1.2%/2.4% y-o-y (year-on-year) in FY20/21F on higher service revenue and steady margins," it said.

It estimates the core EPS to be flattish y-o-y in FY20F, owing to higher depreciation (from higher capex), then rise by 2.1% y-o-y in FY21F.

CGS-CIMB forecasts Maxis' mobile revenue to ease 1.4%/0.2% y-o-y in FY20/21F, driven by a full year's impact from the termination of the 3G radio access network (RAN) sharing contract with U Mobile, further 49% cut in mobile interconnection rates from January 2020 and also tight market competition.

"We project healthy FY20/21F postpaid service revenue growth of 5.4%/4.7% y-o-y on subs growth (including pre- to post-paid migration)," it said, noting that prepaid revenue may dip 7%/6.3% y-o-y due to tight competition.

Home fibre revenue growth should remain robust (+39.9%/+25.9% y-o-y in FY20/21F respectively), however the research house does not expect it to contribute significantly to Maxis' net profit as CGS-CIMB believes its margins are very thin.

Maxis targets to grow service revenue to more than RM10 billion by FY23 (FY19: RM7.8 billion), led by an exponential expansion of its Fixed Enterprise business and has budgeted RM1 billion in growth capex for FY19-21F, including mergers and acquisitions (M&A) to enhance capabilities (attain talents).

The research house noted that Maxis is going in the right direction as the Fixed Enterprise business has been a growth area for other mobile operators in the region.

"However, we prefer to wait until we see an inflection point in revenue before factoring in any value accretion, as this segment has proven to be difficult for Maxis to scale up in the past and any significant earnings contribution will likely be backloaded (i.e. FY21 or later) as capabilities could take time to build and costs (e.g. skilled manpower) may be incurred ahead of revenue," the research house added.

At 10.27am, Maxis shares added 0.2% or 1 sen to RM5.12, for a market capitalisation of RM40.04 billion.

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