Maxis’s 1Q23 net profit of RM320mn was in line with ours and  consensus expectations, accounting 25.0% and 23.0% of full year  estimates respectively. Net profit rose by 7.4% YoY supported by  growth in consumer business revenue but offset slightly by a dip in  enterprise business revenue (-5.9% YoY). We foresee a flattish earnings  growth and remains concern on Maxis near term outlook on the back of  challenging financial performance and uncertainties over 5G resolution.  Maintain a HOLD call with a TP of RM3.95. Our valuation is derived  based on DCF valuation with a WACC of 8.0% and a long-term growth of  1.0%.

• Within expectations. 1QFY23 net profit of RM320.mn (QoQ: +33.9%, YoY:  +7.4%) was in line with ours and consensus expectations accounting 25%  and 23% of full year forecast respectively.

• Dividend. The group declared a first single-tier-tax-exempt of 4.0 sen per  ordinary share. The current dividend is equivalent to a DY of 0.9% based  on current market price. We estimate total FYE23 DPS of 20 sen,  translating into a yield of 4.6%

• QoQ. Maxis’s 1QFY23 revenue slightly down by 1.1% QoQ while Maxis’s  earnings jumped by 33.9% QoQ due to better performance from postpaid  and home connectivity business as well as lower marketing costs after  year end promotions in the previous quarter.

• YoY/ YTD. Top-line and bottom-line increased by 5.0% YoY and 7.4% YoY  respectively, as service revenue grew by 4.0% fuelled by the overall  growth in consumer business revenue but slightly by a dip in enterprise  business revenue (-5.9% YoY). It is worth to note that pospaid business  revenue that was up by 10.1% YoY was attributed to growth in Maxis  Postpaid and Hotlink Postpaid. This was supported by the group’s  effective pre-to-post migration strategy, increasing overall Postpaid  subscriptions.

• Outlook. In regards to Maxis’s 5G development, the group guided that  they are very interested in signing up once they get fair agreements in  terms of access, shares and audit agreements that will benefit both Maxis  and Digital Nasional Berhad (DNB) side. Maxis has been observing its  growth rates and the group guided that its lack of 5G network access does  not have any impact in its earnings growth though we differ on this. We  foresee a flattish earnings growth and remains concern on Maxis near  term outlook on the back of challenging financial performance and  uncertainties over 5G resolution. Note that the management guided the  group FY23 service revenue growth to be in the range of flat to low single  digit and EBITDA & Capex similar to FY22.

• Forecast: Unchanged

• Our call. Maintain a HOLD call with a TP of RM3.95. Our valuation is  derived based on DCF valuation with a WACC of 8.0% and a long-term  growth of 1.0%. Maxis inability to resolve their interest on 5G network  accessibility could dampen interest over its share price and hence, a likely  discount on our DCF-driven FV. This will be re-visited soon, at the latest  in 3Q.

Source: BIMB Securities Research - 22 May 2023