Investment Highlights

• We upgrade Maxis to BUY from HOLD given the 19% share price decline over the past year with an unchanged DCFderived fair value of RM5.00/share, based on an unchanged WACC discount rate of 6.3% and terminal growth rate assumption of 2%. This reflects a neutral ESG score of 3 stars, and implies an FY22F EV/EBITDA of 11x, below its 3-year average of 12x.

• Our forecasts are maintained as Maxis' 1HFY21 normalised net profit of RM694mil was within expectations, accounting for 48%–50% of our and street’s FY21F earnings vs. 50%–56% for the past 3 years.

• Maxis’ 1HFY21 tax-exempt DPS of 8 sen (flat YoY) translates to a payout ratio of 90%, which is also in line with our FY21F– FY23F assumption.

• YoY, Maxis’ 1HFY21 net profit was slightly lower by 1% due to a 5% increase in depreciation to RM779mil, partly offset by sharply lower provisions for doubtful debts (-91%).

• QoQ, Maxis’ 2QFY21 normalised net profit rose 8% to RM360mil from a 1% rise in service revenue, driven by the postpaid segment, and lower operating costs as doubtful debt provision fell by 54%, operation & maintenance 13% and traffic expenses 2% while lumpy USP grants rose 41%.

• Sequentially, Maxis’ 2QFY21 net subscribers continued to rise by 155K to 11.7mil as the postpaid segment’s 127K increase to 4.1mil was partly offset by prepaid declining by 5K to 7.4mil due to the impact of Covid-19 movement control orders (MCO) and prepaid subscribers’ migration to postpaid.

• Blended ARPU was stable at RM47/month despite the postpaid segment slipping by RM1/month to RM75/month from new subscribers at lower entry price. All in, the proportion of postpaid to mobile services was flat YoY at 59% in 2QFY21.

• Additionally, the fixed line business maintained its upward momentum with home fibre users rising 21K QoQ to 444K, business fibre up by 1k to 43K despite MCO constraints. Home fibre ARPU rose slightly by RM1/month QoQ to RM198/month.

• Maxis’ 1HFY21 capex decreased by 25% YoY to RM316mil from the slower spending during the various MCOs. Even so, the spending on network capacity is gathering momentum as 2QFY21 capex rose 32% QoQ to RM180mil.

• 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.

• For a leading cellular operator which has successfully provided convergence propositions, the group’s FY22F EV/EBITDA of 11x is unjustified vs its 3-year average of 12x while providing a fair dividend yield of 3%.

Source: AmInvest Research - 30 Jul 2021