Short-term pain for Maxis

PETALING JAYA: HLIB Research opines that Maxis Bhd will experience short-term pain with the termination of the 3G radio access network deal with U Mobile Sdn Bhd, but may regain spectrum flexibility and capacity going forward, especially after it was awarded with lesser airwave asset in the redistribution exercise.

HLIB Research also does not discount that 2G DR agreement will also be terminated once U Mobile has achieved comfortable population coverage with its newly allocated spectrum.

“We are not entirely surprised by this event as we have highlighted earlier that 2G DR (domestic roaming) and 3G radio sharing would be key issues between these two cellcos post-spectrum reallocation,” it noted.

On the financial impact to Maxis, the research house said collectively under these two agreements, U Mobile contributed RM251 million (2.9%) and RM347 million (4.0%) to Maxis FY15 and FY16 total revenues, respectively. For 1Q17, the total contribution was RM100 million under this partnership.

“While the split is unknown, we estimate that 3G NSA would account for 50-60% of the total contribution.”

It said catalysts for Maxis include higher smartphone penetration and LTE coverage boosting data average revenue per user, network infrastructure outsourcing; as well as continuous momentum of Hotlink FAST and MaxisOne Plan.

“Largest Malaysian telco in terms of revenue market share with quality of service as differentiation to drive leadership in data adoption. Focus will be on service impact due to lesser spectrum allocations and spectrum fee impact on dividend,” said HLIB Research.

It reiterated a “hold” call on Maxis although its target price is cut by 6.6% to RM5.91 from RM6.33, reflecting the earnings downgrade as well as rolling forward of valuation to FY18. It revised downwards Maxis’ FY17-19 earnings per share forecasts by 3.9%, 4.1% and 7.0%, respectively.