Potential Maxis-U Mobile merger may squeeze earnings, dividends
KUALA LUMPUR: A merger between Maxis Bhd and U Mobile Sdn Bhd could weigh on both telcos in the near term, with higher 5G capital expenditure, weaker earnings and dividend pressures, said Hong Leong Investment Bank Bhd (HLIB).
KUALA LUMPUR: The potential merger between Maxis and U Mobile could have negative impacts on both telecommunications companies in the short term, according to Hong Leong Investment Bank Bhd (HLIB). HLIB warns of higher 5G capital expenditure, weaker earnings, and dividend pressures for the telcos. However, the deal could also help restore market discipline by absorbing an aggressive competitor, potentially reducing price competition in a two-player market.
U Mobile's owners have reportedly revived merger talks, with their valuation now at more than RM10 billion, down from the previous RM14 billion. This lower ask falls within Maxis' earlier offer range and raises the probability of a deal. HLIB states that a combination would reduce the market from three operators to two, with Maxis and U Mobile forming a subscriber base similar to that of CelcomDigi.
If the merger occurs, Maxis would gain U Mobile's nationwide 5G network, preserving its network differentiation from the convergence with CelcomDigi under Digital Nasional Bhd. Maxis would need to exit DNB, leaving CelcomDigi and YTL to bear its cost base. HLIB keeps its Overweight rating on the telco sector, acknowledging the attractive risk-reward profile for fixed line operators due to their role in broadband and 5G infrastructure and data centre deployments in Malaysia.
The bank maintains its ratings for Maxis and CelcomDigi for now, pending more concrete developments and management updates at their upcoming results briefings.
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