MAXIS Bhd, Malaysia’s largest mobile telecommunication company by market share, seems to be building up a war chest to fund its expansion in the broadband and managed network security space, as the Jalinan Digital Negara (Jendela) initiatives as well as the rollout of the 5G network get underway.

So far this year, Maxis, through its wholly owned subsidiary Maxis Broadband Sdn Bhd, has issued almost RM2 billion of sukuk. It is part of the RM10 billion unrated sukuk murabahah programme launched back in 2016.

The RM2 billion sukuk issuance is four times more than the RM500 million raised in 2020. There was no issuance of sukuk under the programme in 2018 and 2019, while the values raised in 2017 and 2016 were RM300 million and RM3.79 billion respectively.

The large issuance in 2016 was due to Maxis building up its 4G network infrastructure. It was awarded 2x10 of 900MHz and 2x20 of 1800MHz bands on Aug 30, 2016, by the Malaysian Communications and Multimedia Commission (MCMC).

This time round, with the RM21 billion Jendela programme well underway, as well as wholesale negotiations of the 5G network currently being conducted between Digital Nasional Bhd (DNB) and the telcos, Maxis’ RM2 billion funds will come in handy.

Malaysia decided to go with the single wholesale network (SWN) route to develop its 5G network, whereby DNB will be the network owner. The company has signed an RM11 billion contract with Ericsson to develop 5G infrastructure, in a partnership that covers a 10-year period.

Negotiations are said to be ongoing between DNB and the telcos on the wholesale rates that the telcos will have to pay for the use of the 5G network. DNB targets to roll out the 5G network in Kuala Lumpur, Putrajaya and Cyberjaya by the end of this year.

After the three cities, the 5G network will be expanded to four states — Penang, Johor, Sabah and Sarawak — by the end of next year. By the end of 2024, 80% of the country’s population are expected to get access to the 5G network.

A UBS report on Sept 23 states that wholesale 5G rates in Malaysia could be priced at 30 sen and 70 sen per gigabit (GB). At a base case rate of 50 sen per GB and a margin of 100%, the commercial rates of 5G could be around RM1 per GB.

If the assumptions by UBS turn out to be true, the wholesale rates for 5G will be much lower than the current data cost of RM1.10 per GB. This could mean higher free cash flow yields for telcos as they don’t have to incur capital expenditure for 5G spectrum and network development.

According to UBS, data traffic in Malaysia grew by an annual compound rate of 51% over the past five years, reaching 22GB per user per month in the first half of the year. The investment bank estimates that data margin contracted to RM1.50 per GB in 1H2021 due to falling data yields.

“We believe data yields are likely to continue trending down due to an absence of catalysts. Thus, MNOs (mobile network operators) have to reduce network cost at a faster pace than the data yield decline to arrest the data margin decline.

“That has not been the case over the past five years, with data yields falling at a faster compound rate of 36% compared with network cost falling 33%,” the investment bank states in the report.

As such, the rollout of 5G under an SWN offers MNOs an opportunity to improve data margins, UBS says in the report.

Last Friday, Maxis announced that it has become the first telco in the country to provide its customers with 5G international roaming services in Singapore, Thailand and Indonesia. Maxis customers using 5G while roaming will be charged as per the existing 4G roaming packages with no extra charges. On Oct 13, Maxis announced that it is acquiring MyKRIS Asia Sdn Bhd, a company specialising in managed network and security services, from MyKRIS International Bhd for up to RM157.5 million. MyKRIS International is listed on the LEAP market of Bursa Malaysia.

According to Maxis, the acquisition will further enhance its capabilities, anchored by Maxis Programmable Network, and represents the foundation for future 5G readiness from Private Network to 5G Fixed Wireless Access.

Maybank Investment Bank Research in an Oct 14 note views the deal as reasonable and says the acquisition strengthens Maxis’ enterprise capabilities. It has a “hold” call on Maxis — one of the 14 “holds” on the counter, as tracked by Bloomberg. There are five “buy” and four “sell” calls.

Maxis closed last Friday at RM4.78 — 3 sen above the consensus target price of RM4.75 — for a market capitalisation of RM37.4 billion.