MAXIS Bhd has to brace itself with a potential short-term setback after being slapped with a RM140 mil disallowance of interest expense deduction and penalties for FY2016–FY2017 by the Inland Revenue Board.
The telco has said it would initiate legal proceedings to challenge the basis and validity of the disputed penalties imposed on its wholly-owned subsidiary Maxis Broadband Sdn Bhd.
According to PublicInvest Research, the additional tax bill accounts for about 9% of Maxis’ FY2021F earnings.
“Although the group is expected to contest the tax assessment and penalties, we believe it could eventually be settled at a lower sum,” wrote analyst Eltricia Foong in a company update.
“Nevertheless, this would create an overhang issue in the short term and we expect share price to react negatively.”
All-in, PublicInvest Research maintained its “underperform” rating on Maxis with an unchanged target price of RM4.64.
According to AmBank Research, Maxis is disputing the basis and validity of the additional assessment which accounts to a substantive 10% of its FY2020F earnings as well as submitting a stay order by the court.
“Compared to the corporate tax rate of 24% from 2016 onwards, we note that Maxis’ effective tax rates were 26.5% in FY2016 and 24.3% in FY2017 vs. 29% in FY2015,” observed analyst Alex Goh.
“However, we note that the group’s effective tax rate rose slightly to 25% in FY2018-FY2019. Including the additional tax bill will raise the combined effective tax rate in FY2016-FY2017 to 28%.”
As any impact is likely to be non-recurring, AmBank Research maintained its FY2020F–FY2022F core earnings on Maxis.
“Additionally, the group has indicated that there will not be any imminent financial impact pending the outcome of the legal proceedings,” noted Goh.
The research house maintained its “hold” call on Maxis with an unchanged discounted cash flow-derived fair value of RM5.50/share.
At 10.15am, Maxis was up five sen or 0.98% at RM5.16 with 26,900 shares traded, thus valuing the company at RM40.37 bil. – Nov 23, 2020
