Thursday, February 16, 2012

Maxis Berhad: Sukuk and Broadband Tax Incentive

17 February 2012
Price Target: RM5.54
Share Price: RM5.77


Highlights
# In a filing to Bursa Malaysia, Maxis proposed to establish an Unrated Islamic MTN Programme with an aggregate value of up to RM2.45bn and tenure of 30 years from the date of first issue of the sukuk.

# First issuance of the sukuk is for RM2.45bn with maturity of 10 years for the following usage:
1. RM1.45 billion for refinancing of existing loans; and
2. RM1 billion for CAPEX / working capital and other general purposes.

# Similar to DiGi, Maxis also announced that it enjoys last mile broadband tax incentive of total RM320m, comprising of:
1. RM223 million in respect of prior years; and
2. RM97 million for the 9 months ended 30 September 2011.

# The tax credit in respect of prior years will be refunded over a period of 5 years commencing 2012.

Comments
# The consolidated gearing will increase from 0.63x to 0.75x on proforma basis, based on 2010 audited accounts.

# The tax benefit is perceived to be positive to Maxis relieving NGBB’s front-loaded high CAPEX and cost. After some channel checking, Maxis NGBB business is not "flying” as Maxis has only managed to secure about 4,000 subscribers to date.

# Tax incentive of RM97m for 9M11 translates into 23% effective tax rate (vs assumed tax rate of 26%) and directly boost earnings for FY11. We have assumed 23% for FY12
and FY13 as well.

# Tax credit in respect of prior years is assumed to further reduce tax by RM44.6m for FY12-FY16.

Catalysts
- Higher smartphone penetration boosting data ARPU
- Stronger than expected home fibre internet take up rate

Risks
Government, regulatory, industry and execution risks.

Forecasts
Updated forecast with above mentioned assumptions. As a result, EPS for FY11 to FY13 are revised upward by 8.8%, 4.1% and 1.2% respectively.

Rating : Hold, Target Price: RM5.54
Positives
New business potential in converged services, strong postpaid ARPUs and smartphone penetration.

Negatives
Initially low margin fixed-services would depress profitability, weakening prepaid ARPUs

Valuation
We upgraded our DD-derived Target Price by 2.8% to RM5.54 from RM5.39 with WACC of 7.5% and TG of 0%.



Source: HLIB Research

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