This article first appeared in The Edge Malaysia Weekly on August 21, 2023 - August 27, 2023

MAKING good its word that its shareholders, too, would “soon” get 5G services, Maxis Bhd on Aug 14 entered into an agreement with Digital Nasional Bhd (DNB) and offered 5G services to its customers within 24 hours of getting shareholders’ approval at an extraordinary general meeting (EGM) that took 9½ months to come to pass. (Maxis first mentioned its intent to call an EGM on Nov 2, 2022.)

While Maxis’ virtual EGM on Aug 14, which lasted all of 35 minutes — including 10 minutes of Q&A and a five-minute break to allow for voting — seemed rather anticlimactic, what may well still be playing on many attendees’ minds is perhaps the last question asked by a shareholder during the Q&A session that had nothing to do with DNB or 5G: “Any plan to take over Astro?”

Pointing out that the EGM was convened to seek approval for the proposed execution of the finalised access agreement between DNB and Maxis, Maxis non-executive chairman Tan Sri Mokhzani Mahathir said they would “only be addressing questions relating to this matter [DNB-5G]” and ended the Q&A session after thanking the shareholders for their questions.

It is not the first time that questions of such a nature had been raised at Maxis’ shareholders’ meetings.

Its former chairman Raja Tan Sri Arshad Raja Tun Uda, for instance, had on his last day as chairman of the board told shareholders at its annual general meeting (AGM) in April 2021 that the company was “comfortable with current commercial arrangements” between it and Astro Malaysia Holdings Bhd, which are two separate listed companies with their respective boards and management, but left the door open to the possibility of going beyond prevailing commercial agreements if greater synergies could be derived from doing so in the future.

Since then, both Maxis and Astro have welcomed a new chairman of the board as well as group CEO. Mokhzani took over as non-executive chairman, following the conclusion of Maxis’ 2021 AGM, while Astro named Tunku Ali Redhauddin Tuanku Muhriz as non-executive chairman in June 2022.

In September 2022, Astro announced the retirement of Henry Tan effective from January 2023 and appointed Euan Smith as group CEO designate. In October 2022, Maxis announced that Goh Seow Eng, former president and chief operating officer of Thailand’s largest mobile phone operator Advanced Info Service (AIS), would be joining as CEO-designate effective from Nov 1 last year before officially taking over from Gokhan Ogut upon the completion of his contract on Nov 30, 2022.

Goh, who joined AIS in Dec 2021 after serving 11 years at Singapore Telecommunications Ltd’s TV and digital home, previously served as CEO of entertainment division at Tanjong plc (2009 to 2011) and chief operating officer of Astro’s consumer business (2003 to 2009). Industry old-timers would know that former Telekom Malaysia Bhd group CEO Datuk Imri Mokhtar was also among Astro’s senior management when Goh was there.

Though serving neither on the board or management himself, it is no secret that the ultimate direction for companies under Usaha Tegas comes from billionaire Ananda Krishnan, 85, who controls 62.26% of Maxis, along with parties aligned to him, and also has a 41.29% interest in Astro. His Usaha Tegas is represented on the boards of Maxis and Astro. Ananda’s partners at Saudi Telecom Co, which took up a 25% stake in the entity that privatised Maxis Communications Bhd in 2007, are also represented on the board of Maxis. Meanwhile, Khazanah Nasional Bhd has a 20.63% stake in Astro.

Even before the rumour mill took note of Goh’s past working experience at Astro, it is Ananda’s track record of unlocking value with privatisations and back-to-back partnerships and subsequent public flotation that has put Maxis under constant watch for potential corporate action.

It is also because of the Ananda factor, if you will, that Astro has been subject to rumours of some corporate exercise being in the offing whenever its share price dips to new lows or suddenly rallies.

Just five months back, in a statement to the stock exchange on March 9 this year, following a news report on its share price surging 22% on the back of privatisation rumours, the Astro board clarified that “as far as it is aware, after making due enquiry, the company has not received confirmation of any privatisation proposal”.

Astro — whose previous incarnation was privatised in 2010 and had relisted in 2012 its current form without overseas assets — has made similar statements to the stock exchange before, including in June 2018 and November 2016, following privatisation rumours.

The fact that Astro is now undertaking another voluntary separation scheme (VSS) to improve its financial performance, having already reduced its headcount in 2018, is seen by some observers as “the house being cleaned ahead of a corporate exercise”. Others reckon, however, that it is necessary to keep a tight rein on cost amid tough times.

Apart from potential dealings between sister companies, those familiar with Maxis would know its board and management had also previously been asked, as recently as at its AGM in May, about whether it would merge or collaborate with U Mobile for 5G.

Astro’s share price dipped to a new all-time low of 48.5 sen on July 10, about a fortnight before news of the VSS made headlines, and was still down by some 20% year-to-date as it closed at 52 sen on Aug 17 to give it a market capitalisation of RM2.71 billion.

Much of the decline had to do with dividends coming in below expectations.

In March this year, Astro surprisingly did not pay a final dividend when announcing fourth-quarter results, causing the dividend for FY1/2023 to fall to three sen, or a 60% payout ratio — a departure from its dividend policy of paying at least 75% of consolidated profits. That three sen was less than half of the 6.75 sen per share paid in FY1/2022 and eight sen per share paid in FY1/2021.

For the first quarter ended April 30, 2023 (1QFY1/2024), Astro declared a dividend of only 0.25 sen, or just over RM13 million in total, even as its quarterly profits skidded 84% year-on-year to RM15.9 million from RM100 million on the back of higher operating and finance costs (including unrealised forex losses from transponder leases) even as revenue slipped 7.4% y-o-y to RM891.1 million on a decrease in subscription and advertising revenue as well as lower merchandise sales.

If Astro maintains a dividend of three sen per share paid for FY1/2023 in FY1/2024 (which would require 2.75 sen dividend in the remaining three quarters of the current financial year), indicative yield would still be 5.77%, going by Astro’s share price of 52 sen on Aug 17.

Should Astro maintain a dividend at 0.25 sen per quarter, however, a dividend of one sen for the whole year would put the yield at 1.9%, at the 52 sen share price close on Aug 17.

According to Bloomberg data at the time of writing, most analysts still expected Astro to pay at least three sen dividend for FY1/2024, with median forecast at 4.2 sen. Maybank Investment Bank, which has the lowest dividend forecast of 2.4 sen for FY1/2024, has a “sell” recommendation on Astro, with a price target of 59 sen. Among the 11 analysts who updated their recommendation in June and July, there were five “sell” and five “hold” calls, and only one “buy” call by RHB with a price target of 84 sen. The lowest price target is CLSA’s 50 sen, with a “sell” recommendation.

The Employees Provident Fund ceased to be a substantial shareholder of Astro on Jan 12 this year, as its shareholding slipped below the 5% threshold, down from 8.1% on Feb 10, 2021, and 6.51% on Jan 10, 2022, stock exchange filings show.

There is no denying that money from subscriptions, which comprise more than 70% of Astro’s revenue, has been on the decline for at least five years. Less than half of Astro’s 5.46 million pay-TV subscribers belong to the premium pool of those who pay a fixed monthly bill, back-of-the-envelope calculations show.

Advertising revenue, which made up about 11% of its top line in FY1/2022 and FY1/2023, was down y-o-y and quarter-on-quarter in the first quarter ended April 30, 2023 (1QFY1/2024). Its home shopping business, which broke even during the pandemic, has slipped back into the red for six quarters now, according to details appended in its financial statements.

With Astro selling home broadband, something Maxis had begun to sell earlier, it would be surprising if deal originators and investment bankers had not begun crunching numbers to pitch potential deals.

What is muddying valuations, however, is the government’s policy on 5G and the single wholesale network (SWN) under DNB, which has only begun to see some clarity. What is certain, so far, is the intent to transition to a dual network in accordance with industry standards (whatever that means) once Malaysia achieves 80% population coverage of 5G via DNB by year-end.

At the Aug 14 EGM, Maxis’ Goh told shareholders that he “cannot comment on the cost of building a second [5G] network at this moment, as discussions are still ongoing with the industry on the transition to the two 5G networks”.

The EPF, which is not represented on the board of Maxis had an 11.39% interest in Maxis as at Aug 14, filings show, down about 8.45 million shares from 11.5% as at March 10 this year, according to the company’s 2022 annual report.

During the EGM on Aug 14, Maxis chief financial officer Jennifer Wong told shareholders that Maxis was “committed to ensuring sustainable dividends for our investors and will manage cash flow accordingly”. That was after she said Maxis “cannot ascertain expected returns [for 5G] at this stage, as there are too many moving parts that [it is] continuing to assess”, which includes consumer take-up of 5G services and the speed of migrating its mobile traffic from 4G to 5G.

Meanwhile, Goh told shareholders at the EGM that the access agreement with DNB was expected to contribute positively to revenues and repeated Maxis’ 2023 guidance for a “low single-digit” increase in service revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) coming in at “similar levels” to 2022 at RM3.9 billion.

Based on 5G packages announced by Maxis, existing customers with 5G phones can try out 5G for free for one month by activating a 5G pass and/or choosing to pay RM10 extra a month to upgrade existing postpaid mobile packages of RM98 and above to new packages with 5G that comes with significantly larger data allowances. Those who require less data and choose to downgrade their subscription to a cheaper package with 5G would incur a penalty if there is an existing contract.

It would be interesting to see how many Maxis postpaid customers would choose to pay a penalty to downgrade to a cheaper 5G package.

Maxis is not the only telco to charge existing subscribers who want 5G. Both Celcom and Digi also charge their postpaid customers RM10 for 5G Boosters, but give 5G for free to postpaid plans above RM90 per month, according to their media releases in March and June.

In any case, shareholders would know that Maxis dividends have also fallen y-o-y to four sen per share each for 1Q2023 and 2Q2023, below the five sen per share in 1Q2022 and 2Q2022, even though net profit for 1H2023 was 6.4% higher y-o-y at RM650 million compared with RM611 million in 1H2022.

At a closing price of RM3.95 on Aug 17, to give Maxis a market capitalisation of RM30.94 billion, indicative yield would still be 4% if the company continues to pay a dividend of four sen per share in 3Q2023 and 4Q2023.

At the current juncture, even if Maxis were to merge with Astro, their combined market cap is unlikely to be larger than CelcomDigi Bhd’s RM51.62 billion on Aug 17. With both companies running a tight ship, it would be interesting to see whether the size of merger synergies outweighs integration risks.

Yet, no one would completely discount the possibility of Ananda working out a win-win plan that unlocks value for him and his partners while not leaving minority shareholders worse off. Developments will certainly be closely watched. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.