Investment Highlights

• We maintain our HOLD recommendation on Maxis with a lowered DCF-derived fair value of RM3.90/share (previously RM4.34/share). This is based on a raised WACC discount rate of 8.4% (previously 6.3%) as we tweak our cost of equity higher and terminal growth rate assumption of 2%, while 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 forecasts are maintained as Maxis’ 1HFY22 net profit of RM627mil came in within expectations, making up 55% of ours and 49% of streets FY22 estimates. As a comparison, 1H accounted for 50%–56% of its full-year results over the past 4 years.

• The group declared its second interim dividend of 5 sen, bringing YTD dividend to 10 sen per share and represents 56% of our FY22F estimate. This translates to a dividend payout ratio of 119% but only 39% of 2QFY22 EBITDA and 33% of operating free cash flow.

• YoY, Maxis’ 1HFY22 net profit fell 10% due to higher depreciation and amortisation charges from spectrum rights’ useful life revisions and prosperity tax impact. Stripping these off, Maxis’ core profit of RM699mil was flattish compared to 1HFY21.

• On a QoQ basis, Maxis’ core net profit increased 16% despite flattish sales. This is primarily due to lower operating expenses, particularly from traffic cost (-5%) and staff cost (-8%).

• In consumer business, net subscribers rose 172K as postpaid, prepaid and home connectivity contributed positively, bringing total subscribers to 9.7mil as of 2QFY22, an increase of 1.8% QoQ.

• Blended APU improved RM1/month to RM57/month as the larger prepaid subscription base experienced an overall ARPU increase of 3% to RM39/month, as well as postpaid ARPU growing by RM1/month to RM79/month due to increased international roaming as borders reopened.

• In terms of capex, Maxis’ 1HFY22 expanded 30% YoY to RM412mil, as the group continued to focus on improving 4G coverage connectivity. The represents 32% of our fullyear estimate of RM1.3bil. We deem this in line with our expectations as Maxis’ capex cycle is typically slow during the 1H and escalate in the 2H of the year.

• As Malaysia entered the Covid-19 endemic transition phase, the group deems that it is now appropriate to provide its FY22F guidance of low-to-mid single-digit growth for service revenue and flat-to-low single-digit growth for EBITDA compared to FY21. While its service revenue is in line with our assumption, we maintain our forecast for negative EBITDA growth assuming Maxis will incur an additional network cost of RM500mil annually from 5G wholesale capacity charges, as the group accepted DNB’s single wholesale network model for 5G network deployment.

• 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 5%.

Source: AmInvest Research - 29 Jul 2022