HLIB Research

PP 9484/12/2012 (031413)

Maxis Berhad (HOLD , EPS ) 29 June 2017

INDUSTRY: NEUTRAL Price Target: RM5.91 ()
NEWSBREAK Share
29 Price:
June 2017
RM5.61

Termination of U Mobile 3G NSA Tan J Young

Highlights Received a letter from U Mobile to terminate Network Sharing jytan@hlib.hongleong.com.my
and Alliance Agreement (NSA) for Maxis 3G radio access (603) 2168 1082
network (RAN) dated 21 Oct 2011.
KLCI 1771.2
The termination will take place in stages over a period of 18 Expected share price return 5.3%
months with completion on 27 Dec 2018. Expected dividend return 3.6%
Expected total return 8.9%
We understand that there is a separate agreement for 2G
domestic roaming (DR) and is excluded in this cessation. Share price
RM Pts
Financial Collectively under these 2 agreements, U Mobile contributed 7.0 1900

Impact RM251m (2.9%) and RM347m (4.0%) to Maxis FY15 and

FY16 total revenues, respectively. For 1Q17, the total 6.5 1800
contribution was RM100m under this partnership.
6.0 1700
While the split is unknown, we estimate that 3G NSA would
account for 50-60% of the total contribution. 5.5 1600
MAXIS (LHS) KLCI (RHS)
Comments We are not entirely surprised by this event as we have
5.0 1500
highlighted earlier that 2G DR and 3G radio sharing would be Jun-16 Aug-16 Nov-16 Jan-17 Mar-17 May-17
key issues between these 2 cellcos post spectrum
reallocation (please refer to our report entitled 2017 Outlook Information
dated 9 Jan 2017). Bloomberg Ticker MAXIS MK
Bursa Code 6012
Short term pain for long term gain for Maxis. Although this will Issued Shares (m) 7,511
lead to forgone revenue, Maxis may regain spectrum flexibility Market cap (RM m) 42,134
and capacity going forward, especially after it was awarded 3-mth avg. volume (000) 3,330
with lesser airwave asset in the redistribution exercise. SC Shariah-compliant Yes

Do not discount that 2G DR agreement will also be terminated Price Performance 1M 3M 12M
once U Mobile has achieved comfortable population coverage Absolute -13.2 -12.9 -3.4
with its newly allocated spectrum. Relative -13.1 -14.1 -10.9

Catalysts Higher smartphone penetration and LTE coverage boosting Major shareholders
data ARPU, network infrastructure outsourcing. Binariang GSM 64.9%
EPF 9.7%
Continuous momentum of Hotlink FAST and MaxisOne Plan. ASB 8.4%

Risks Regulatory, competitive and execution risks. Summary Earnings Table

FYE Dec (RMm) 2016A 2017E 2018F 2019F
Forecasts Update our model taking into consideration of this Revenue 8,612 8,640 8,785 8,845
development and the recent private placement. In turn, our EBITDA 4,551 4,527 4,603 4,635
FY17-19 EPS forecasts are revised downward by 3.9%, 4.1% Pre-tax Profit 2,737 2,589 2,749 2,823
and 7.0%, respectively. PATAMI 2,013 1,904 2,022 2,076
Adj PATAMI 1,963 1,904 2,022 2,076
Rating HOLD , TP: RM5.91 Rep. EPS sen 25.77 24.38 25.89 26.58
Adj. EPS sen 25.13 24.38 25.89 26.58
Largest Malaysian telco in terms of revenue market share P/E (x) 21.8 23.0 21.7 21.1
with quality of service as differentiation to drive leadership in Net DPS sen 20.00 20.00 20.71 21.27
Net DY (% ) 3.57 3.57 3.69 3.79
data adoption. Focus will be on service impact due to lesser
P/BV (x) 9.28 6.52 6.15 5.81
spectrum allocations and spectrum fee impact on dividend. EV/EBITDA (x) 11.65 11.18 10.83 10.59
Net Debt/Eqty % 194.49 101.22 85.07 69.80
Valuation Reiterate HOLD although our TP is cut by 6.6% to RM5.91
ROA % 9.99 8.83 9.18 9.24
from RM6.33 reflecting the earnings downgrade as well as ROE % 41.58 28.34 28.38 27.54
rolling forward of valuation to FY18. HLIB

Our fair value is based on DCF valuation with WACC of 5.9%

(previously 5.4%) and TG of 0%.

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Figure #1 HLIB Forecasts vs. Consensus

FY17E FY18F
RMm
HLIB Consensus % HLIB Consensus %
Net Profit 1,904.0 1,913.0 -0.5 2,023.0 1,914.0 +5.7
EPS (sen) 24.4 25.2 -3.2 25.9 25.1 +3.2
HLIB, Bloomberg

Figure #2 Regional Peers Comparison

Price Market Cap (m) P/E (x) P/B (x) ROE (%) Gross DY (%)
Company FYE
(Local) (Local) (USD) 2017 2018 2017 2018 2017 2018 2017
Malaysia
Maxis Dec 5.61 42,134.0 9,800.9 22.3 22.4 8.0 7.6 37.9 34.6 3.6
Axiata Dec 4.91 44,062.5 10,249.5 31.3 26.8 1.8 1.7 5.7 6.5 1.9
DiGi Dec 5.01 38,952.8 9,060.9 24.0 24.0 65.9 64.2 302.1 301.7 4.1
TM Dec 6.62 24,877.5 5,786.8 29.3 27.6 3.2 3.2 11.0 11.4 3.1
TIME dotCom Dec 9.83 5,684.6 1,322.3 24.8 21.7 2.4 2.2 10.1 10.7 1.1
Average 26.3 24.5 16.3 15.8 73.4 73.0 2.7

Indonesia
PT Telekom Dec 4,520 455,615,983.7 34,149.0 19.5 17.2 4.7 4.4 24.4 25.2 3.2
Indosat Dec 6,500 35,320,567.8 2,647.3 19.5 13.3 2.4 2.1 12.8 16.1 2.1
XL Dec 3,410 36,445,945.0 2,731.7 95.5 34.2 1.7 1.5 1.3 3.8 0.7
Average 44.8 21.6 2.9 2.7 12.8 15.0 2.0

Singapore
Singtel Mar 3.83 62,540.7 45,110.1 15.3 14.6 2.2 2.1 14.3 14.4 4.8
Starhub Dec 2.75 4,754.6 3,429.4 17.5 18.5 26.4 28.1 142.0 144.6 5.8
M1 Dec 2.18 2,027.7 1,462.5 14.6 16.3 4.7 4.4 34.0 29.0 5.5
Average 15.8 16.4 11.1 11.5 63.4 62.7 5.4

South Korea
SKT Dec 266,000 21,478,359.1 18,776.4 9.7 9.5 1.2 1.1 13.2 11.5 3.8
KTC Dec 32,650 8,525,300.5 7,452.8 10.1 9.3 0.7 0.6 6.9 7.2 3.0
LGU Dec 15,950 6,963,951.2 6,087.9 13.0 11.8 1.3 1.2 10.8 11.1 2.5
Average 10.9 10.2 1.1 1.0 10.3 9.9 3.1

Thailand
AIS Dec 177.00 526,237.9 15,474.9 17.8 16.7 10.6 9.1 63.5 58.4 4.1
True Dec 6.15 205,214.4 6,034.7 -96.1 361.8 1.6 1.6 -1.5 0.5 0.0
Average -39.1 189.2 6.1 5.3 31.0 29.5 2.1

China
China Mobile Dec 82.90 1,697,417.5 249,631.2 14.6 13.6 1.6 1.5 11.5 11.6 3.2
China Telecom Dec 3.75 303,496.4 44,633.8 15.1 13.5 0.9 0.9 6.2 6.6 2.7
China Unicom Dec 11.62 278,265.1 40,923.1 51.9 27.9 1.2 1.1 2.2 3.9 0.6
Average 27.2 18.3 1.2 1.2 6.6 7.4 2.2

India
Bharti Mar 372.1 1,487,432.5 23,018.6 45.6 30.7 2.1 2.0 4.9 6.5 0.6
RCOM Mar 21.2 52,766.4 816.6 -2.5 -2.9 0.2 0.2 -6.5 -5.2 0.1
Idea Mar 81.4 293,531.7 4,542.5 -13.0 -14.2 1.3 1.5 -9.2 -9.3 0.3
Average 10.0 4.6 1.2 1.2 -3.6 -2.7 0.3
Bloomberg

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Maxis Berhad (HOLD, PT: RM5.91, CP: RM5.61)

Income Statement Quarterly Financial Summary
FYE 31 Dec (RMm) 2015A 2016A 2017E 2018F 2019F FYE 31 Dec (RMm) 1Q16 2Q16 3Q16 4Q16 1Q17
Revenue 8,601 8,612 8,640 8,785 8,845 Revenue 2,140.0 2,102.0 2,156.0 2,214.0 2,157.0
COGS -4,270 -4,061 -4,113 -4,182 -4,210 COGS -927.0 -1,052.0 -1,026.0 -1,056.0 -1,046.0
EBITDA 4,331 4,551 4,527 4,603 4,635 EBITDA 1,213.0 1,050.0 1,130.0 1,158.0 1,111.0
D&A -1,425 -1,431 -1,502 -1,513 -1,500 D&A -355.0 -344.0 -348.0 -384.0 -337.0
EBIT 2,906 3,120 3,025 3,090 3,134 EBIT 858.0 706.0 782.0 774.0 774.0
Net Interest Income -446 -383 -436 -341 -311 Net Interest Income -124.0 -58.0 -102.0 -99.0 -97.0
Associates 0 0 0 0 0 Associates 0.0 0.0 0.0 0.0 0.0
Exceptionals 0 0 0 0 0 Exceptionals 0.0 0.0 0.0 0.0 0.0
PBT 2,460 2,737 2,589 2,749 2,823 PBT 734.0 648.0 680.0 675.0 677.0
Tax -713 -724 -685 -727 -747 Tax -214.0 -165.0 -175.0 -170.0 -172.0
PAT 1,747 2,013 1,904 2,022 2,076 PAT 520.0 483.0 505.0 505.0 505.0
Minority Interests 8 0 0 0 0 Minority Interests 2.0 -5.0 2.0 1.0 0.0

PATAMI 1,739 2,013 1,904 2,022 2,076 PATAMI 518.0 488.0 503.0 504.0 505.0
Adj PATAMI 1,919 1,963 1,904 2,022 2,076 Adj PATAMI 482.0 426.0 512.0 543.0 510.0

Basic Shares (m) 7,811 7,811 7,811 7,811 7,811 Basic Shares (m) 7,811 7,811 7,811 7,811 7,811
Rep. EPS sen 22.3 25.8 24.4 25.9 26.6 Rep. EPS sen 6.632 6.248 6.440 6.452 6.465
Adj. EPS sen 24.6 25.1 24.4 25.9 26.6 Adj. EPS sen 6.171 5.454 6.555 6.952 6.529
Adj. FD EPS sen 24.6 25.1 24.4 25.9 26.6 Adj. FD EPS sen 6.171 5.454 6.555 6.952 6.529

Balance Sheet Valuation Ratios

FYE 31 Dec (RMm) 2015A 2016A 2017E 2018F 2019F FYE 31 Dec (RMm) 2015A 2016A 2017E 2018F 2019F
Cash 1,296 682 3,063 3,804 4,602 PER (x) 25.2 21.8 23.0 21.7 21.1
Receivables 1,218 1,582 1,420 1,444 1,454 Adj. PER (x) 22.8 22.3 23.0 21.7 21.1
Inventories 13 6 12 12 12 FD PER (x) 22.8 22.3 23.0 21.7 21.1
Investments 0 0 0 0 0 Net DPS sen 20.0 20.0 20.0 20.7 21.3
Fixed Assets 4,227 4,502 4,495 4,504 4,446 Net DY (% ) 3.6 3.6 3.6 3.7 3.8
Intangibles 11,267 11,297 11,811 11,501 11,190 Book/share sen 54.0 60.4 86.0 91.2 96.5
Other Assets 963 1,574 757 757 757 P/Book (x) 10.4 9.3 6.5 6.2 5.8
Ttl Assets 18,984 19,643 21,558 22,023 22,462 FCF/share sen 34.4 23.5 29.3 30.2 31.5
Payables 3,467 3,633 3,551 3,610 3,635 FCF yield (% ) 6.1 4.2 5.2 5.4 5.6
Short Term Debt 1,077 1,101 1,101 1,101 1,101 Mkt Cap 43,817 43,817 43,817 43,817 43,817
Long Term Debt 8,801 8,763 8,763 8,763 8,763 Net Cash(Debt) -8,582 -9,182 -6,801 -6,060 -5,262
Other Liabilities 1,419 1,425 1,425 1,425 1,425 EV 52,399 52,999 50,618 49,877 49,079
Ttl Liab 14,764 14,922 14,840 14,899 14,924 EV/EBITDA (x) 12.1 11.6 11.2 10.8 10.6
Shareholders' Funds 4,190 4,721 6,719 7,123 7,538 ROE (% ) 45.5 41.6 28.3 28.4 27.5
Minority Interests 30 0 0 0 0 Current Ratio (x) 0.58 0.49 0.95 1.10 1.25
Total S/H Equity 4,220 4,721 6,719 7,123 7,538 Quick Ratio (x) 0.57 0.49 0.95 1.09 1.25
Ttl Liab&S/H Funds 18,984 19,643 21,558 22,023 22,462 Interest Cover (x) 6.21 6.64 6.53 6.67 6.76

Cashflow Analysis Other Ratios

FYE 31 Dec (RMm) 2015A 2016A 2017E 2018F 2019F FYE 31 Dec (RMm) 2015A 2016A 2017E 2018F 2019F
EBITDA 4,331 4,551 4,527 4,603 4,635 Sales Growth (% ) 2.5 0.1 0.3 1.7 0.7
Net Interest -446 -383 -436 -341 -311 EBITDA Growth (% ) 2.4 5.1 -0.5 1.7 0.7
Tax Paid -713 -724 -685 -727 -747 EBIT Growth (% ) 3.2 7.4 -3.0 2.2 1.4
Working Capital Chgs 217 -191 74 36 15 PBT Growth (% ) 1.0 11.3 -5.4 6.2 2.7
Other 684 -153 0 0 0 Net Profit Growth (% ) 1.3 15.2 -5.4 6.2 2.7
Operating CF 4,073 3,100 3,480 3,571 3,591 EBITDA Margin (% ) 50.4 52.8 52.4 52.4 52.4
FCF 2,685 1,838 2,287 2,358 2,459 EBIT Margin (% ) 33.8 36.2 35.0 35.2 35.4
CAPEX -1,388 -1,262 -1,192 -1,212 -1,132 PBT Margin (% ) 28.6 31.8 30.0 31.3 31.9
Asset Sales 0 0 0 0 0 Net Profit Margin (% ) 20.3 23.4 22.0 23.0 23.5
Acquisitions 0 0 0 0 0 Net Debt/Equity (% ) 203.4 194.5 101.2 85.1 69.8
Other -491 -588 0 0 0 CAPEX/Sales (% ) 16.1 14.7 13.8 13.8 12.8
Investing CF -1,879 -1,850 -1,192 -1,212 -1,132
Dividends -1,562 -1,562 -1,562 -1,618 -1,661
Debt Chgs 880 62 0 0 0
Other -1,747 -384 1,656 0 0
Financing CF -2,429 -1,884 94 -1,618 -1,661
Net Cashflow -235 -634 2,381 741 798

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Disclaimer

The information contained in this report is based on data obtained from sources believed to be
reliable. However, the data and/or sources have not been independently verified and as such,
no representation, express or implied, are made as to the accuracy, adequacy, completeness or
reliability of the info or opinions in the report.
Accordingly, neither Hong Leong Investment Bank Berhad nor any of its related companies and
associates nor person connected to it accept any liability whatsoever for any direct, indirect or
consequential losses (including loss of profits) or damages that may arise from the use or
reliance on the info or opinions in this publication.
Any information, opinions or recommendations contained herein are subject to change at any
time without prior notice. Hong Leong Investment Bank Berhad has no obligation to update its
opinion or the information in this report.
Investors are advised to make their own independent evaluation of the info contained in this
report and seek independent financial, legal or other advice regarding the appropriateness of
investing in any securites or the investment strategies discussed or recommended in this report.
Nothing in this report constitutes investment, legal, accounting or tax advice or a representation
that any investment or strategy is suitable or appropriate to your individual ci rcumstances or
otherwise represent a personal recommndation to you.
Under no circumstances should this report be considered as an offer to sell or a solicitation of
any offer to buy any securities referred to herein.
Hong Leong Investment Bank Berhad and its related companies, their associates, directors,
connected parties and/or employeees may, from time to time, own, have positions or be
materially interested in any securities mentioned herein or any securites related thereto, and
may further act as market maker or have assumed underwriting commitment or deal with such
securities and provide advisory, investment or other services for or do business with any
companies or entities mentioned in this report. In reviewing the report, investors should be
aware that any or all of the foregoing among other things, may give rise to real or potential
conflict of interests.
This research report is being supplied to you on a strictly confidential basis solely for your
information and is made strictly on the basis th at it will remain confidential. All materials
presented in this report, unless specifically indicated otherwise, is under copyright to Hong
Leong Investment Bank Berhad. This research report and its contents may not be reproduced,
stored in a retrieval sys tem, redistributed, transmitted or passed on, direclty or indirectly, to any
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at your own risk.
Published & Printed by
1. As of 29 June 2017, Hong Leong Investment Bank Berhad has proprietary interest in the Hong Leong Investment Bank
following securities covered in this report: Berhad (10209-W)
Level 23, Menara HLA
(a) -.
No. 3, Jalan Kia Peng
50450 Kuala Lumpur
2. As of 29 June 2017, the analyst, Tan J Young who prepared this report, has interest in the Tel 603 2168 1168 / 603 2710 1168
following securities covered in this report: Fax 603 2161 3880
(a) -.

Equity rating definitions

BUY Positiv e recommendation of stock under coverage. Expected absolute return of more than +10% ov er 12-months, with low risk of sustained downside.
TRADING BUY Positiv e recommendation of stock not under coverage. Expected absolute return of more than +10% ov er 6-months. Situational or arbitrage trading opportunity .
HOLD Neutral recommendation of stock under coverage. Expected absolute return betw een -10% and +10% over 12-months, with low risk of sustained downside.
TRADING SELL Negativ e recommendation of stock not under coverage. Expected absolute return of less than -10% ov er 6-months. Situational or arbitrage trading opportunity.
SELL Negativ e recommendation of stock under coverage. High risk of negative absolute return of more than -10% ov er 12-months.
NOT RATED No research coverage, and report is intended purely for informational purposes.

Industry rating definitions

OVERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% ov er 12-months.
NEUTRAL The sector, based on weighted market capitalization, is expected to have absolute return betw een 5% and +5% over 12-months.
UNDERWEIGHT The sector, based on weighted market capitalization, is expected to have absolute return of less than 5% ov er 12-months.

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