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 11x, below its 5-year average of 12x, which reflects limited earnings upside due to the inflationary environment that affects consumer affordability and the potential 5G wholesale capacity charge that could constrain earnings growth potential.

• Maxis’ FY22 net profit of RM1,181mil came in 7% below our and consensus forecasts. The negative variance is mainly attributed to higher-than-expected device costs following a good take-up take rate of its bundled packages for newly launched devices. We made no changes in our estimates as this will not affect the group’s future earnings.

• Maxis declared its fourth interim dividend of 5 sen/share, bringing its FY22 dividend to 20 sen/share and this translates to a dividend payout ratio of 133%.

• Despite booking a stronger revenue of RM9,789mil (+6% YoY), Maxis’ FY22 net profit fell 10%, dragged lower by the faster pace of increase in device cost (+18% YoY) and amortisation charge (+73% YoY), coupled with the impact of the prosperity tax (estimated at RM168mil).

• The group’s service revenue improved by 4% YoY, as its converged solutions helped to boost sales of all three consumer sub-segments ie. postpaid, prepaid and home connectivity. Enterprise business revenue inched up 1% after the pickup in demand for fixed & solutions offerings was mostly offset by lower contribution from the wholesale voice business, which is being phased out to re-prioritise on better margin products.

• On a QoQ basis, Maxis’ 4QFY22 net profit declined 24%, mainly due to higher amortisation charge (+11%), staff costs (+12%) and device costs (44%).

• Operationally, the group’s consumer subscribers rose 108K (or +1%) YoY as the growth in postpaid (+204K) and home connectivity (+91K) segments offset the decline in prepaid (-174K). The sharp drop in prepaid subscribers stems from the periodic clean-out of non-revenue SIM cards in 1QFY22.

• Maxis’ blended ARPU remains resilient at RM56/month (+RM0.8/month QoQ, RM3.0/month YoY) supported by both prepaid (driven by the introduction of new packages) and postpaid (due to the increase in outbound roaming) segments. Meanwhile, home connectivity ARPU remains flattish (unchanged QoQ, -RM2.6/month YoY).

• Maxis’ FY22 capex of RM1,114mil declined 6% YoY as 4QFY21 capex was the peak of investment in 4G capacity. The group did not provide any FY23F capex guidance pending the government’s review of the 5G single wholesale network rollout structure.

• On the 5G front, while it has yet to sign the agreement, the company continues to express its commitment to be a part of the country’s 5G journey and reiterate that they are 5G-ready. The decision to delay signing the access agreement, we believe, should be viewed as the company taking a more cautious stance on potential changes in the rollout plan structure following the government’s governance review instead of reluctance to adopt 5G

• From a valuation perspective, the stock is currently trading at FY23F EV/EBITDA of 11.2x, slightly below its 5-year average of 12x while providing a decent 5.6% dividend yield. We view these valuations as fairly valued at this juncture as earnings growth will be capped by the potential 5G wholesale capacity charge and affordability pressure with a lack of near-term rerating catalysts.

Source: AmInvest Research - 24 Feb 2023