KUCHING: Maxis Bhd (Maxis) faces a challenging second quarter of 2016 (2Q16), the research arm of Maybank Investment Bank Bhd (Maybank IB Research) observes, when the impact from the recent postpaid pricing debacle will show and the quantum of spectrum fees will be announced (potentially mid-2016).
According to Maybank IB Research, gearing is a concern and there is downside risk to dividends.
Maybank IB Research noted that Maxis has had to cut dividends since 2015 in order to manage the group’s gearing (gearing is high due to years of sustaining dividends above free cash flow (FCF).
It further noted that with the impending 900/1800 megahertz (MHz) spectrum payments, Maxis’ net debt to earnings before interest, tax, depreciaiton and amortisation (EBITDA) would likely climb above management’s internal two-fold limit.
“While this is not yet an impediment to Maxis raising new debt, dividend risk would undoubtedly be skewed to the downside,” the research ar said.
The research arm cut its 2017/18 dividend per share (DPS) forecasts to 20sen from 25sen previously.
1Q16 was a fairly routine quarter for Maxis, with both EBITDA and net profit coming in within Maybank IB Research’s and consensus forecasts.
“The real litmus test however lies in 2Q16, when the impact from the recent postpaid pricing debacle will show (minimal subscriber loss would be deemed a positive surprise by the market),” the research arm said.
Maybank IB Research highlighted that in lieu of gearing and dividend concerns, it follows that Maxis’ cost of equity should trend higher, and the stock de-rate.
The research arm maintained ‘hold’ on the stock but has lowered its target price to RM5.90 per share, from RM6.60 per share previously, to reflect a higher weighted average cost of capital (WACC) (from 6.7 per cent previously to 7.1 per cent due to an increase in beta from 0.8-fold to one-fold).
“This has not yet taken into account the 900/1800MHz spectrum fee,” it said.