Investment Highlights

• We maintain HOLD on Maxis with an unchanged DCF-derived fair value of RM3.90/share (WACC: 8.4% & terminal growth: 2%). This implies a FY24F EV/EBITDA of 10.1x, which is 1.5 standard deviation below the 5-year average of 12x. We expect limited near-to-medium earnings upside for Maxis due to potential profit margin erosion from Digital Nasional’s 5G wholesale charge amid an inflationary environment impacting consumer affordability.

• We maintain our FY23F-FY25F earnings for Maxis as the group’s 9MFY23 results were within expectations. Maxis reported a 9MFY23 core net profit (CNP) of RM1.0bil, which accounted for 71% of our forecast and 74% of street’s. As a comparison, 9M earnings accounted for 72%-74% of the group’s FY20-FY22 core net profit.

• We have excluded RM73mil exceptional staff costs from an optimisation exercise from Maxis’ core profit. The cost optimisation exercise, which will take 3 years to complete, is expected to reduce staff and resources costs by 10%.

• Maxis has declared a 3rd interim dividend of 4 sen per share, bringing the YTD gross DPS to 12 sen (-20% YoY). This represented 80% of our FY23F DPS of 15 sen and translates to a dividend payout ratio of 93%.

• On a YoY basis, 9MFY23 CNP increased by 7% from RM942mil in 9MFY22 to RM1.0bil in 9MFY23, mainly driven by an 8% increase of postpaid subscribers (+262k) and home fibre (+90k), together with a 6.7%-point effective tax decrease to 26%. The improvement in postpaid subscribers was driven by fixed-mobile convergence and sale of device-bundled postpaid products, partly offset by a 146k drop in prepaid subscribers largely to the postpaid segment.

• On a sequential basis, 3QFY23 CNP increased by 9% from RM329mil in 2QFY23 to RM360mil in 3QFY23. This was predominantly contributed by a 3% increase in consumer convergence service revenue, mainly from postpaid subscribers (+84k), slightly offset by lower prepaid users (- 2k). Device revenue was 17% QoQ lower in 3QFY23 due to lower promotions. We believe that device revenue could rebound in 4QFY23 from 3QFY23 on the back of the newly launched iPhone 15 products line.

• Separately, revenue from fixed solutions in enterprise business rose 12% QoQ in 3QFY23, boosted by wholesale 4G multi-operator core networks (MOCN) together with 4G and 2G domestic roaming. These, in turn, were driven by commercial deals for dedicated internet access with a large nationwide bank.

• Maxis’ total consumer subscribers rose 194K (or +2%) YoY in 9MFY23 as growth in postpaid (+262K) and home connectivity (+90K) segments more than offset the decline in prepaid (- 146K).

• Maxis is currently trading at a fairly valued FY24F EV/EBITDA of 10.1x, which is 16% below its 5-year average of 12x, with a decent dividend yield of 4.2%. A lack of near-term rerating catalysts coupled with limited earnings growth is expected to cap the stock’s upside.

Source: AmInvest Research - 14 Nov 2023