Maxis Bhd’s (Maxis) 2QFY23 net profit increased marginally by 2.5% YoY to RM330m, mainly driven by lower tax cost due to the absence of Cukai Makmur. Operationally, revenue improved by 1.9% YoY on higher postpaid, fibre and device sales but this was offset by an increase in operating costs i.e amortization and device cost. The results were in line with expectations, accounting for 47% and 50% of consensus and our full-year estimates, respectively. Our earnings forecasts remain unchanged. Maintain Neutral on Maxis. A second interim dividend of 4 sen per share was declared, lower than 2QFY22 of 5 sen per share.

• 2QFY23 revenue improved by 1.9% YoY due to higher contribution from postpaid, home fibre and device sales. Postpaid revenue rose 7.5% YoY on higher take-up rate for the affordable entry level Hotlink plan while home fibre customer base increased by 16.3% YoY. Meanwhile, prepaid revenue continued to fall (-4.1% YoY) on the back of a 1.6% drop in subscriber base and a 3.1% decline in ARPU.

• 2QFY23 net profit was 2.5% higher on lower tax cost. Despite the increase in revenue, operating cost has also increased, leading to a 9% drop in pretax profit. The increase in operating costs came from higher device cost and amortization cost due to spectrum awarded in 2022. However, net profit rose 2.5% YoY as the discontinuation of Cukai Makmur resulted in a 29.5% decline in tax cost.

• Potential earnings impact from 5G wholesale agreement. Following its intended execution of 5G access agreement with Digital Nasional Bhd (DNB), Maxis is expected to incur operating expenses of approximately RM360m a year in FY24F. However, this is still subject to shareholders approval at the Extraordinary General Meeting (EGM) to be held on 14 August. Also note that the wholesale cost to be incurred by Maxis is higher than its peers of RM288m a year, which Maxis is still in discussion with the government to resolve any outstanding issues and to create a more level playing field. Nevertheless, assuming no reduction in the wholesale cost and taking into account partial offset of future cost savings from the cessations of existing 4G network as well as incremental income to be generated through the provision of 5G services, our preliminary estimates sugest that our FY24-25F forecasts could be revised down by 14-16%. For now, we maintain our earnings forecasts pending the outcome of the EGM and Maxis’ negotiation with the government.

Source: PublicInvest Research - 10 Aug 2023