Investment Highlights

• We maintain Maxis’ HOLD rating with an unchanged DCFderived fair value of RM4.34/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 FY22F EV/EBITDA of 11x, below its 3-year average of 12x.

• Our forecasts are maintained following Maxis’ 1QFY22 investors briefing last Friday. Below are the key takeaways:
  • The group’s strategy in providing converged solutions to 400K premises, including households, businesses and schools is expected to be rolled out over the next 12–18 months. The investments will be a combination of commercial capex and universal service provider (USP) clawbacks as part of the government’s JENDELA initiatives.
  • In particular, household expansions are captured under the consumer fibre segment, where the group continues to partner with property developers to provide connectivity to new townships, such as Gamuda Cove with Gamuda and Taman Bertam Heights with Teladan Setia.
  • The group was also awarded a Phase 1 tender by the Ministry of Communications and Multimedia (KKMM) to fiberise 127 schools and 27K premises in the surrounding areas in the southern region of Malaysia. Maxis expects the larger Phase 2 project’s tender to be opened in the coming months.
  • In the consumer postpaid segment, the group sees a strong prepaid to postpaid migration, thanks to a favourable response to device campaigns. We view this positively given the higher postpaid ARPU of RM78/month vs. prepaid’s RM38/month in 1Q2022. However, it was noted that the group’s postpaid ARPU has been trending downward from RM82/month in 1Q2021 due to increasing Hotlink postpaid subscribers and increased shared lines.
  • Meanwhile, the group will pivot its Hotlink prepaid segment to under-served markets such as the youth segment, value seekers, B40 segment and foreign workers as this segment’s ARPU remains resilient, providing stable revenue stream.
• Maxis will continue to focus on structural cost changes and cost efficiency to improve productivity by combining major cross-functional initiatives and acquiring new capabilities as well as optimising its operating model. This could involve cloud partnerships, digital solutions for e-commerce, analytics and payments for corporates/small-medium enterprises.

• Recall that the group has successfully completed its acquisition of MyKris Asia on January 2022 to provide end-to-end management and protection of ICT set-up, further enhancing its enterprise offerings by integrating with existing managed network systems and hybrid network capabilities for wired and wireless connectivity for businesses.

• Amid a matured cellular market with intense competition and tepid revenue growth prospects, the stock’s FY22F EV/EBITDA of 11x is currently below its 3-year average of 11x while providing a fair dividend yield of 4%.

Source: AmInvest Research - 5 May 2022