Investment Highlights

• We maintain HOLD on Maxis with an unchanged DCF-derived fair value of RM3.90/share (WACC: 8.1% & terminal growth 2%). Our fair value implies a FY24F EV/EBITDA of 10x, which is 1 standard deviation below the 5-year mean of 11x.

• We expect limited near-to-medium term earnings upside fo Maxis due to uncertainties over the second wholesal network and potential profit margin erosion from higher 5G wholesale charges on improvements on Digital Nasional’ (DNB) network infrastructure.

• We maintain FY24F-FY26F earnings as Maxis’ 1QFY24 cor net profit (CNP) of RM353mil was within our expectation accounting for 25% of our full-year estimate and 26% o street’s.

• Maxis has declared an interim dividend of 4.0 sen/shar (payout ratio: 89%), which is in line with our full-year forecas of 17 sen/share.

• Maxis recorded a higher service revenue of RM2.2bil (+4% YoY) across consumer (+3% YoY) and enterprise (+6% YoY segments in 1QFY24. The growth was driven by an 8% increase in postpaid subscribers to 3.7mil, attributed to a pre to-post migration strategy and an expanded range of postpaid offerings (from RM30/month to RM199/month).

• Home fibre revenue rose by 13% YoY to RM216mil in 1QFY24 supported by a healthy uptake of home fibre broadband. Thi increase was reflected in the home connection subscribe base, which grew by 11% YoY to 765k in 1QFY24 vs. 688k in 1QFY23. Home connectivity revenue accounted for 11% o service revenue.

• On the flip side, Maxis' average revenue per user (ARPU) fel by 4.2% YoY to RM75.10 in 1QFY24 due to a RM1.20/month drop to RM37.20/month in prepaid ARPU. This was caused b intense competition in the prepaid market together with bundled postpaid packages. Consequently, prepaid revenu decreased by 1.8% YoY.

• Sequentially, Maxis’ CNP declined by 2% QoQ in 1QFY24 du to a 5% decrease in revenue. Recall that in 4QFY23, roaming revenue was robust due to higher project deliveries and seasonal factors. Management revealed that 1QFY2 wholesale payment to DNB was below RM40mil, less than hal of the full annual capacity charge of RM360mil upon reaching contracted 5G service milestones.

• Free cash flows were strong at RM857mil in 1QFY24, due to strong working capital management. Maxis continues to reduce operating costs while waiting for details on the 5G dual network development.

• For FY24F, Maxis is guiding for a low single-digit increase for service revenue, flat EBITDA and capex of less than RM1bil.

• Valuation-wise, the stock is currently trading at a fair FY24F EV/EBITDA of 9.6x, which is slightly below the 5- year average of 11x due to uncertainties in 5G dual network deployment, which could constrain longer-term earnings growth trajectory. Meanwhile, FY24F dividend yield is decent at 4.6%.

Source: AmInvest Research - 20 May 2024