Investment Highlights

• We maintain Maxis’ HOLD rating with a lowered DCF-derived fair value of RM4.34/share (from an earlier RM5.00/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 11x, below its 3-year average of 12x.

• Our lower DCF stems from incorporating an assumption of additional 5G wholesale capacity charges of RM500mil per year, which leads to lower free cash flows.

• Even so, our forecasts are maintained as Maxis’ 1QFY22 normalised net profit of RM298mil was within our expectation but slightly below consensus, accounting for 26% of our FY22F earnings and 21% of street’s. As a comparison, 1Q accounted for 26% of FY20–FY21 normalised earnings.

• Maxis raised its first interim dividend by 1 sen YoY to 5 sen, which translates to 28% of our FY22F estimate and a payout ratio of 132%. This exceeds the 90%–100% payout ratio for the first quarters of FY19–FY20.

• YoY, Maxis’ normalised net profit decreased 11%, primarily due to higher depreciation and amortisation charges from spectrum rights. Stripping this off, EBITDA was still lower by 2% as increased contracted device volume raised device subsidies with device sales rising 40% to RM376mil.

• On a QoQ basis, Maxis’ normalised net profit rose 3% despite lower sales booked due to lower device sales after the New Year sales and new high-end smartphone launches in 4QFY21. The improving net profit is on the back of lower operating expenses, mainly from a reduction in operating & maintenance (-29%), traffic costs (-7%) and spectrum licence fees (-7%).

• Maxis net subscribers for its consumer business slid 167K QoQ to 9.5mil as the prepaid segment lost 241K subscribers to 5.7mil due to the group’s effort to clean up non-active accounts. This was partially offset by a 50K increase in the postpaid segment to 3.2mil and 24K for home connectivity to 615K. Meanwhile, blended ARPU improved RM1/month to RM56/month, as the larger prepaid subscription base experienced an overall increase in ARPU of 3% to RM38/month.

• In terms of capex, Maxis’ 1QFY22 increased 26% YoY to RM171mil, representing 13% of our full-year estimate of RM1.3bil. This is in line with Maxis’ investment cycle, which is typically slow at the start of the year. The capex was directed towards protecting network performance, rebalancing capacity and supporting the enterprise business segment.

• In view of the high uncertainties arising from the potential emergence of more infectious Covid-19 variants and its impact, the group continues its stance in refraining to provide any FY22F guidance. The stock currently trades at FY22F EV/EBITDA of 11x, slightly below its 3-year average of 12x while providing a fair dividend yield of 4%.

Source: AmInvest Research - 29 Apr 2022