Investment Highlights

• We maintain Maxis’ HOLD rating with a lowered DCF-derived fair value of RM5.00/share (from an earlier RM5.10/share). This is based on an unchanged WACC discount rate of 6.3% and terminal growth rate assumption of 2%, reflecting a neutral ESG score of 3 stars. This also implies an FY22F EV/EBITDA of 12x and is on par with its 3-year average.

• Our lower DCF stems from a 5%–6% reduction in Maxis’ FY21F–FY23F earnings from lower revenue assumption for enterprise fixed services.

• This is because Maxis' 1QFY21 normalised net profit of RM334mil was slightly below expectations, accounting for 22%–23% of our and street’s FY21F earnings vs. 25%–29% for the past 3 years. Maxis’ first interim 1QFY21 tax-exempt DPS of 4 sen (flat YoY) translates to a payout ratio of 93%, generally in line with our FY21F–FY23F assumption of 90%.

• YoY, Maxis’ net profit decreased by 6% as 1QFY20 still benefited from lingering revenue recognition from the expired 3G wholesale radio access network arrangement with U Mobile while mobile termination rates were halved as movement restrictions started in March 2020.

• QoQ, Maxis’ 1QFY21 normalised net profit rose 5% on lower operating expenses, mainly from a reduction in operation & maintenance (-8%), traffic costs (-4%) and device (-5%). The group’s 1QFY21 service revenue slid 0.6% QoQ to RM1,959mil from a 12% contraction in enterprise fixed services, which was impacted by temporary delays in installations, and slight 0.4% decline in mobile revenue to RM1,664mil, largely from lower working days in February.

• Compared to Digi’s QoQ overall subscriber decline of 194k in 1QFY21, Maxis commendably continued to rise by 239K QoQ to 11.4mil from both the prepaid (+172K) and postpaid (+67K) segments. Blended ARPU slid RM1/month to RM47/month due to the postpaid segment declining to RM76/month from new subscribers at lower entry price.

• Additionally, the fixed line business maintained momentum with home fibre users rising 21K QoQ to 423K although business fibre was flat at 42K due to the negative economic impact of Covid-19 movement restrictions. Home fibre ARPU rose slightly by RM1/month QoQ to RM108/month. All in, the proportion of postpaid to mobile services was slightly higher at 59% in 1QFY21 vs. 57%–58% in 1Q–4QFY20.

• Maxis’ 1QFY21 capex shrank 17% YoY to RM136mil from a traditionally slow start of the year with the group expecting its fibre collaboration with Celcom and Digi to continue despite their current merger plans.

• While the group has not provided any FY21F guidance due to the ongoing Covid-19 impact, management indicated that FY21F capex could be similar to RM1.2bil in FY20, excluding Jendela projects which will be utilising the MCMC’s USP fund. The stock’s FY21F EV/EBITDA of 12x is currently on par with its 3-year average while providing a fair dividend yield of 3%.

Source: AmInvest Research - 26 Apr 2021