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).

However, HLIB said the deal could help restore market discipline by absorbing an aggressive price competitor, potentially easing price competition in a two-player market.

The telcos were reported to have revived merger talks, with U Mobile's owners now seeking a valuation of more than RM10 billion, down from RM14 billion previously.

"The lower ask falls within Maxis' earlier offer range and, in our view, raises the probability of a deal," it said.

HLIB said a combination would reduce the market from three operators to two, adding that Maxis and U Mobile will form a subscriber base broadly on par with CelcomDigi Bhd.

If the merger materialises, Maxis will gain U Mobile's nationwide 5G network, preserving network differentiation rather than converging to parity with CelcomDigi under Digital Nasional Bhd (DNB).

Maxis will need to exit DNB, leaving CelcomDigi and YTL to shoulder its cost base.

HLIB kept its "Overweight" call on the telco sector as it continues to see an attractive risk-reward profile for the fixed line operators, given their key role in broadband/5G infrastructure and data centre deployments in Malaysia.

"For mobile, we maintain our ratings on Maxis and CelcomDigi for now pending more concrete developments and management updates at their upcoming results briefings," HLIB said.

Meanwhile, Maxis shares rose in early trade following reports of renewed plans for a potential merger with U Mobile Sdn Bhd.

At 10.23am, Maxis shares rose 1.42 per cent or five sen to RM3.56, with 268,300 shares traded before settling at RM3.57 at midday.

The stock closed at RM3.54, up three sen or 0.85 per cent, with 1.89 million shares changing hands, giving the company a market capitalisation of RM27.76 billion.