Investment Highlights

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

• We maintain FY24F-FY26F earnings as Maxis’ 1HFY24 core profit (CNP) of RM709mil was within our expectatio accounting for 50% of our full-year estimate, but be consensus at 53% of street’s.

• Maxis core net profit (CNP) grew 9% YoY to RM709mi 1HFY24 from RM649mil in 1HFY23 due to 4% YoY top growth.

• Maxis has declared a second interim dividend of 4.0 sen/sh (payout ratio: 89%), bringing cumulative DPS to 8.0sen/sh for 1HFY24. The DPS is in line with our FY24F DPS of 1 sen/share.

• Maxis recorded a higher 1HFY24 service revenue of RM4. (+4.3% YoY) vs. RM4.2bil in 1HFY23. This was attributed commendable growth across consumer (+3.5% YoY) enterprise (+8.4% YoY) segments. The growth was driven 5% YoY increase in postpaid revenue, as postpaid subscrib grew to 3.7mil (+8% YoY). This was driven by a pre-to-p migration strategy and wider range of postpaid offerings (fr RM30/month to RM199/month).

• However, postpaid average revenue per user (ARPU) decli 4.5% YoY to RM74.40/month in 1HFY24 (v. RM77.90/mont 1HFY23) from cheap postpaid plan amid expanded subscr base.

• Home fibre revenue rose by 12% YoY to RM440mil in 1HF (vs. RM393mil in 1HFY23), supported by a healthy uptake ) ) home fibre broadband subscriptions via compelling bund deals with postpaid packages. The increase was reflected the home connection subscriber base, which grew by 1 YoY to 777k in 1HFY24 vs. 706k in 1HFY23. Home connecti revenue accounted for 11% of service revenue.

• Sequentially, Maxis’ CNP expanded marginally by 0.8% Q to RM356mil in 2QFY24 (vs. RM353mil in 1QFY24) due to lo traffic cost (-4% QoQ). Access fee for 5G was booked 2QFY24 at a similar level to 1QFY24.Management revealed that 1QFY24 wholesale payment to DNB was below RM40mil.
   
• Free cash flows were strong at RM1.87bil in 1HFY24 RM1.13bil in 1HFY23) due to strong working cap management.
   
• Maxis 1HFY24 capex declined to RM222mil from RM296m 1HFY23.Maxis continued to reduce capital expenditure while anticipating the announcement of the winner of the second 5G network spectrum bid at the end of September.
   
• Maxis has raised its FY24E EBITDA guidance to single-digit percentage growth (vs. flat previously) premised on a stronger revenue growth YTD (+4% YoY). Maxis maintains its guidance for a low single-digit increase for service revenue 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. FY24F dividend yield is decent at 4.6%.

Source: AmInvest Research - 22 Aug 2024