CGS-CIMB reiterates HOLD call on Maxis Bhd to reflect the new trading range post industry consolidation announced in 2021, when the Celcom-Digi merger was announced compared to a post-2010 range, previously.
“We believe the lack of growth catalysts will cap Maxis’ multiple upside,” it said in its Company Note today (Jan 17).
The research house also reduces its lower enterprise value (EV) to its earnings before interest, taxes, depreciation & amortization (EV/EBITDA)-derived target price of RM4 from RM4.26 previously, as it cuts its estimates and reduce its target multiple from 10.4x FY24F to 9.9x FY25F (both -1 s.d.).
On 5G network development, CGS-CIMB expected 5G network ownership and buildout issues faced by the mobile industry to be resolved in 1H24F, removing a key uncertainty for the Malaysian mobile sector.
“We expect the due diligence exercise on Digital Nasional Berhad (DNB) is set to be completed by end-Mar 2024 (as announced). With DNB’s 5G network coverage at 80%, according to the Communications Minister, the process to move to a dual wholesale network (DWN) can soon begin.
“Our base case assumption, built into our estimates for the telcos, is for Maxis and CelcomDigi to be the key stakeholders of the two networks, with Maxis likely to lead the second network.
“We believe the resolution of network ownerships will reduce uncertainties around capex, funding and therefore earnings and dividends of the mobile operators, in particular,” it added.
While CGS-CIMB’s economics team estimates Malaysian private consumption grew 4.9% in 2023F before likely accelerating to 6.5% in 2024F, its analysts estimates the big two mobile operators, Maxis and CelcomDigi, delivered a 0.7% year-on-year (YoY) decline in aggregate non-fibre service revenues in 2023F, with 1.4% YoY growth in 2024F.
“We see new solutions, especially in the enterprise space, as key to boosting growth for mobile operators (through 5G).
“(However), we believe operators will need to step up efforts to convince large and small businesses alike that the incremental investment in digitalisation will drive positive financial outcomes, especially in an environment where the cost of labour remains relatively low,” the research house.
The research house said the key upside and dowside risks, in its view, is up and down shifts in revenue growth trajectory as well as increased regulatory scrutiny on network quality and coverage, including Maxis, in its view.
