Maxis’s 1H23 net profit of RM649mn was in line with ours and consensus expectations, accounting for 50.0% and 47.0% of full year estimates respectively. Net profit in 1H23 rose by 6.2% YoY supported by growth in consumer (4.7% YoY) and enterprise (4.5% YoY) business. We foresee a flattish earnings growth and remains concern on Maxis near term dividend outlook. 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. 1HFY23 net profit of RM649mn (YoY: +6.2%) was in line with ours and consensus expectations accounting for 50% and 47% of full year forecast respectively.

• Dividend. The group declared a second interim dividend of 4.0 sen per ordinary share, bringing cumulative 1HFY23 DPS to 8.0 sen (versus 10.0sen in 1HFY23).

• QoQ. Maxis’s 2QFY23 revenue slightly down by 2.2% QoQ while Maxis’s earnings edged up by 2.8% QoQ in-line with higher EBITDA, as lower device launches in 2QFY23 led to lower device costs. As for consumer business, postpaid and home connectivity recorded a marginal improvement by 0.8% QoQ and 3.2% QoQ respectively.

• YoY. Top-line and bottom-line increased by 1.9% YoY and 2.2% YoY respectively, as service revenue grew by 3.2% supported by the growth in consumer business and enterprise revenue. It is worth to note that postpaid business revenue was up by 7.5% YoY, pushed by higher postpaid subscriptions by 6.3% YoY.

• YTD. As for 1HFY23, Maxis registered better revenue and earnings of RM4,996mn (3.4% YoY) and RM649mn (6.2% YoY). 1HFY23 EBITDA slightly up by 1.8% YoY in-line with the rise in service revenue, which was offset by a decrease in USP income due to fewer project fulfilments in 2023. The marginal decline in EBIT however was attributed to elevated amortization expenses stemming from spectrum and software costs.

• Outlook. In regards with Maxis's 5G development, the group has indicated that once they sign the AA, they will launch the 5G-related products, most likely next week. Looking ahead, we do foresee an increase in capital expenditure due to investments in 5G infrastructure and other related products. We anticipate relatively stagnant earnings growth and remain concerned about Maxis's near-term outlook due to its challenging financial performance. Additionally, we are concern on the group's dividend outlook as Maxis’s first and second dividends are lower than its historical rate of 5 sen. However, considering the potential obligations linked to 5G and investments in fiber-optic infrastructure, we believe that the current quarter's DPS rate is fair.

• 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%.

Source: BIMB Securities Research - 10 Aug 2023