Investment Highlights

• We maintain Maxis’ HOLD rating with an unchanged DCFderived fair value of RM5.10/share. This is based on a WACC discount rate of 6.3% and terminal growth rate assumption of 2%, which reflects a neutral ESG score of 3 stars. This also implies an FY20F EV/EBITDA of 12x and is on par with its 3- year average.

• Maxis has been served with notices of additional tax assessment with penalties of RM230mil for 2018 and 2019 mainly due to the disallowance of interest expense deductions.

• This is the same rationale for the additional tax assessments of RM140mil back on 17 November 2020. As in the previous assessment, Maxis will contest the basis and validity of these assessments, including an interim court stay of the enforcement of the notices until the case decision.

• We note that management did not make any provisions for the additional tax in 4QFY20. Likewise, pending the outcome of the court, we do not expect Maxis to make any immediate provision for the full sum of RM370mil, which translates to 25% of FY21F net profit.

• Even so, we would view any such provision to be nonrecurring. Hence, this is unlikely to change our FY21F– FY23F core earnings.

• Operationally, Maxis’ overall subscriber growth regained traction in 4QFY20, rising by 145K QoQ to 11.3mil from both postpaid (+84K) and prepaid (+46K). However, 4QFY20 average revenue per user (ARPU) for prepaid and postpaid slid RM1/month QoQ to RM32/month and RM77/month respectively from new subscribers at a lower entry price.

• Sequentially, home fibre users climbed 25K to 402K and business fibre increased by 2K to 42K in 4QFY20. 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 has refrained from providing any FY21F guidance. The stock’s FY21F EV/EBITDA of 12x is slightly below with its 3-year average, while providing a fair dividend yield of 4%.

Source: AmInvest Research - 1 Apr 2021