Investment Highlights

• Reiterate 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 impacting consumer affordability.

• Maxis’ 1QFY23 net profit of RM320mil came in within  expectations, accounting for 27%/23% of our FY23F  earnings and consensus. Therefore, we are not making  any changes to our FY23F-FY25F earnings. The group  declared an interim dividend of 4 sen/share (payout ratio:  98%), on track to meet our full year forecast of 15  sen/share.

• The 7% improvement in net profit was backed by healthy  revenue level of RM2,526mil (+5% YoY) as well as lower  effective tax rate (-6%-points) given the absence of 2022  prosperity tax. 

• The group’s service revenue improved by 6% YoY, as  converged solutions helped to boost sales of all 3 consumer sub-segments i.e., postpaid (+10% YoY),  prepaid (+1% YoY) and home connectivity (+11% YoY). 

• Separately, enterprise business revenue jumped 6% YoY,  boosted by mobile sub-segment (+8% YoY). Excluding wholesale voice business, fixed & solutions sub-segment  inched up 3% YoY.

• On a QoQ basis, Maxis’ 1QFY23 net profit spiked up 34%,  following the normalisation of its effective tax rate (-16%- points) as the company recognised higher tax charge for  the prosperity tax in the previous quarter.

• Operationally, the group’s consumer subscribers rose  249K (or +3%) YoY as the growth in postpaid (+208K) and  home connectivity (+89K) segments offset the decline in  prepaid (-32K). The QoQ drop in prepaid subscribers stems from the periodic clean-out of non-revenue SIM  cards.

• Maxis’ blended ARPU remains resilient at RM57.2/month  (-RM0.6/month QoQ, +RM1.3/month YoY) with minimal  changes in both prepaid and postpaid segments.  Meanwhile, home connectivity ARPU declined 1% QoQ  and 2% YoY as the group migrates wireless broadband  customers to fibre.

• On the 5G front, the company continues to express its  commitment to be a part of the country’s 5G journey and  expects to come out with 5G-related offerings soon.  However, there is a lack of clarification presently on how  the change from a single to dual network structure will  affect the company’s cost structure and capex plan.  

• From a valuation perspective, the stock is currently trading at FY23F EV/EBITDA of 11.8x, slightly below its 5-year  average of 12x while providing a decent 3.8% dividend yield. We view these valuations as fairly valued at this juncture  as earnings growth will be capped by affordability pressures coupled with the lack of near-term rerating catalysts.

Source: AmInvest Research - 22 May 2023