Investment Highlights

• Reiterate our HOLD recommendation on Maxis with an unchanged DCF-derived fair value of RM3.90/share (WACC: 8.4% & terminal growth: 2%). This implies FY23F EV/EBITDA of 10.5x, below its 3-year average of 12x.

• We maintain our forecasts as Maxis’ 9MFY22 net profit of RM942mil came in within expectations, making up 74% of our and 73% of street’s FY22F earnings. As a comparison, 9M accounted for 77% of its full-year results over the past 3 years.

• The group declared its third interim dividend of 5 sen, bringing YTD to 15 sen per share and representing 88% of our FY22F DPS. This translates to a dividend payout ratio of 124%.

• Despite the stronger revenue (+7% YoY), Maxis’ 9MFY22 net profit fell 8%, dragged lower by higher amortisation (+86% YoY), device charges (+29% YoY) and operating expenditure (+5% YoY), particularly staff and network costs (+10% YoY), together with the impact of prosperity tax. Excluding the prosperity tax impact (estimated at RM110mil), 9MFY22 normalised earnings of RM1,052mil are 3% higher than 9MFY21, in line with the robust topline.

• On a QoQ basis, Maxis’ net profit declined 4%, mainly due to higher amortisation charge (+22%) and lower government grant recognition (-30%) during the quarter.

• Operationally, the group’s consumer subscribers rose 171K (or 2%) YoY as the growth in postpaid (+197K) and home connectivity (+83K) segments offset the decline in prepaid (-109K).

• Maxis’ blended ARPU remains resilient at RM57/month (- RM0.2/month QoQ) as the prepaid reduction from seasonally higher 2QFY22 base was partially offset by an uptick in international outbound postpaid roaming.

• Maxis’ 9MFY22 accelerated capex of RM684mil is 16% higher than the same period last year. However, the group maintains its FY22F capex guidance to be similar with FY21 (RM1,187mil).

• On 5G access agreement, Maxis is currently in the midst of seeking shareholder approval and the process is expected to be completed latest by January 2023.

• From valuation perspective, the stock is currently trading at FY23F EV/EBITDA of 10.5x, slightly below its 3-year average of 12x while providing a decent 5.6% dividend yield. We view these valuations as fully valued at this juncture given the uncertain earnings impact of 5G wholesale capacity charge amid the upcoming GE15.

Source: AmInvest Research - 7 Nov 2022