Investment Highlights

• We maintain Maxis’ HOLD rating but with a lowered DCF-derived fair value of RM5.10/share (from an earlier RM5.50/share). This is based on a WACC discount rate of 6.3% and terminal growth rate assumption of 2%, implying an FY20F EV/EBITDA of 12x and is on par with its 3-year average.

• We tweak our FY20F–FY22F earnings as Maxis' FY20 normalised net profit of RM1,378mil (-8% YoY) was within our expectation, coming in 3% below our forecast but 6% below street’s.

• However, Maxis declared a final 4QFY20 DPS of 5 sen, which cuts FY20 dividends by 3 sen YoY to 17 sen – 2 sen below our forecast. Hence, we have lowered our FY21F–FY22F dividend payout assumption to 90% from 95%.

• The group’s FY20 mobile revenue decline of 6% YoY to RM6.7bil was partly offset by higher contribution from enterprise fixed services (+71%) and home fibre (+30%).

• However, Maxis’ FY20 normalised net profit shrank 8% YoY mainly due to the termination of the 3G wholesale radio access network arrangement with U Mobile, halving of mobile termination rates, reduced roaming charges and doubling of doubtful debt provision to RM268mil and a 17% increase in depreciation to RM1.5bil from capex spent.

• Maxis’ 4QFY20 normalised net profit rose decreased by 12% QoQ to RM319mil partly from an 18% increase in depreciation due to spending on an IT billing system with shorter useful lives. This was exacerbated by higher device (27%), network (+20%), traffic (+5%) and operation & maintenance costs (+26%).

• 4QFY20 service revenue was flat QoQ as higher contributions from enterprise services (+5%) and home fibre (+6) were mostly offset by a 0.6% decline in mobile business. The lower mobile revenue stemmed from the prepaid segment, which fell by 3% QoQ to RM696mil. As such, the proportion of prepaid to overall mobile revenue has decreased to 42% from 44% in 4QFY19.

• However, Maxis’ overall subscriber growth regained traction, rising by 145K QoQ to 11.3mil from both postpaid (+84K) and prepaid (+46K). Average revenue per user (ARPU) for prepaid and postpaid slid RM1/month to RM32/month and RM77/month respectively from new subscribers at a lower entry price.

• Additionally, home fibre users climbed 25K to 402K and business fibre increased by 2K to 42K. While commendable, this lagged TM’s 4QFY20 unifi subscribers which have increased by 128K to 1.8mil – 4x Maxis’ fixed broadband users.

• Maxis’ capex rose 24% to RM504mil for 4QFY20, which translated to a slight 2% YoY increase to RM1.2bil for FY20. This was largely spent on its core network capacity expansion, translating to 16% of service revenue and largely in line with the group’s earlier FY20F capex guidance.

• Given the uncertain impact from the Covid-19 pandemic, management refrained from providing any FY21F guidance. The stock’s FY21F EV/EBITDA of 12x is slightly below with its 3-year average of 12x, while providing a fair dividend yield of 4%.

Source: AmInvest Research - 1 Mar 2021