Maxis shares fall on news of private placement exercise

PETALING JAYA: Maxis Bhd shares fell as much as 6% after it proposed a private placement exercise to raise RM1.67 billion based on an issue price of RM5.52 per share.

The telco told Bursa Malaysia it had completed the book-building process for the private placement, which attracted demand from both local and foreign institutional investors.

The stock declined 26 sen or 4.4% to close at RM5.62 yesterday, with some 17.58 million shares changing hands.

PublicInvest Research said the private placement does not come as a surprise given Maxis’ high gearing level and heavier capital expenditure in view of the rising spectrum cost.

It believes the timing for this fund raising exercise is ideal as Maxis’ earnings remain resilient at this juncture due to its premium branding and superior network infrastructure relative to peers.

However, PublicInvest Research said this may not sustain moving into 2018, as it expects the peers to improve on product offering and quality of services once they roll out additional spectrum under the 900/1800MHz bands.

Post-share placement exercise, Maxis’ earnings per share (EPS) for FY17 to FY19 is expected to be diluted by about 3.8% due to the increase in share base while gross debt to earnings before interest, taxes, depreciation and amortisation (ebitda) to improve to about 2 times from 2.4 times.

At a gross debt to ebitda of 2.4 times, PublicInvest Research said there is little room for Maxis to leverage up to fund for future expansion or capex.

It believes the telco industry would incur higher capex for the coming years due to possible re-pricing and reallocation of 700MHz, 2100MHz and 2600MHz spectrum.

“Therefore, we reckon it’s necessary for Maxis to embark on this equity fund raising exercise to strengthen its balance sheet.”

Meanwhile, MIDF Research is revising downwards its target price for Maxis to RM6.12 from RM6.65, premised on a lower price-to-earnings ratio of 23 times from 25 times to reflect the challenging business environment which may weaken the group’s cash generating capability.

The target price will be reduced further to RM5.89 upon completion of the private placement, which will lead to a cut of about 4% for FY17-FY18 EPS.

While commending Maxis’ effort to retain its postpaid and prepaid average revenue per user (ARPU), MIDF Research believes the strategy has negatively impacted the potential growth in the group’s postpaid and prepaid subscriber base.

“We are of opinion that the dwindling subscriber base would place Maxis in a difficult position to meaningfully grow its service revenue and maintain a healthy profit margin,” it said, noting that Maxis’ subscribers have continued to shrink since Q3’15.