Analysts remain cautious over Maxis dividend payout

They are concerned telco may reduce distribution moving forward

PETALING JAYA: Analysts have indicated their mounting concern over the possibility of Maxis Bhd reducing its dividend distribution moving forward, just as the telco completed its RM1.7bil-worth of private placement.

Widely seen as a dividend play stock, analysts remain cautious vis-a-vis the telecommunication player’s dividend payout, underpinned by the declining trend of Maxis’ dividend payout ratio over the past few years.

Yesterday, Maxis has placed out 300 million new shares at RM5.52 per unit, representing a 6% discount to the closing price last Friday.

The private placement was intended as a de-gearing move, as the company seeks sufficient leverage to fund improvements to its service quality and prepare for future spectrum assignment fees.

Maybank IB Research indicated that concerns over dividend rose as Maxis’ gearing level is already at the management’s internal ceiling, due to possible revision in spectrum fees.

To note, Maxis could incur a higher capital expenditure if the re-pricing and re-allocation of 700MHz, 2100MHz and 2600MHz spectrum take place. Maybank IB Research noted that Maxis’ recent private placement would be instrumental in temporarily addressing concerns relating to its leverage level.

“The equity-raising thus immediately relieves Maxis of its gearing concerns, allowing management some degree of financial flexibility,” said the research unit.

MIDF Research in a recent note, stated that changes in Maxis’ dividend payout policy has led the blue chip counter to appear less appealing, with regard to dividend distribution.

“Maxis’ attractiveness as a dividend play stock has waned due to the changes in its dividend payout policy.

“Based on the current dividend policy, we view that dividend yield would come in far below 4%,” said the research house.

Echoing a similar take on Maxis’ dividend payout, AmInvestment Bank Research signalled that the telecommunication player may opt to reduce its dividend payout ratio, which declined to 75% in the first quarter of FY17 and FY16, compared to a ratio of 86% in FY15.

“For now, we maintain our dividend per share assumptions, based on 65% of Maxis’ free cash flows, which translate to a reasonable yield of 3%.

Nevertheless, there is a risk that prospective dividend payouts may be lowered on higher-than-expected capital expenditure or spectrum fees,” said AmInvestment Bank Research in its report.

Maxis is known among investors for its generous dividend distribution. Maxis which was listed at the Main Market in 2009, has been consistently paying an annual dividend of 40 sen per share in FY10-FY14.

However, the company halved its dividend payout to 20 sen per share in FY15, as it stopped borrowing for the purpose of dividend distribution and lowered its dividend payout ratio to below 100% for the first time since its listing.

With the possibility of lower dividend payouts by Maxis moving forward, the concern now is whether investors could be on the lookout for a better dividend yielding counter in the domestic telecommunications industry.

However, worth to be noted, Maxis is not the only player in the telecommunications industry to reduce its dividend payout ration in recent times.

Earlier this year, Axiata Group Bhd, which had a net debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) of 2 times, has cut its dividend payout from 85% to 50% for the next two years.

On the other hand, Digi.com Bhd has been soundly maintaining a payout ratio ranging between 97-100% in the past four years. As for FY16, the telco rewarded its shareholders with a net dividend of 20.9 sen per share, equivalent to a dividend yield of 4.3%.