• Maxis reported 3Q23 results, with core net profit of RM362m in line with our and Bloomberg consensus’ estimates. FY23F capex guidance was reduced.

• Management expects 5G negotiations to be concluded shortly and does not expect retail broadband pricing to shift from current levels.

• We reiterate our Hold call, with a target price of RM4.26.

Results in Line, Capex Guidance Reduced

• Maxis’s 3Q23 core net profit of RM362m brought 9M23 core profit to RM936m, in line at 76% of our full-year forecast and 74% of Bloomberg consensus’. Its third interim DPS of 4 sen was within our expectations.

• Management reduced FY23F capex guidance from RM1.1bn (similar to FY22) to slightly below RM1bn. This appears to us to be a function of the delayed 5G negotiations.

Three-year Cost Optimisation Programme Kicks Off

• Management stated that Maxis is embarking on a 3-year cost rationalisation programme. Staff numbers were reduced by 10% in 3Q23, or by about 400 based on end-2022 staff number of 4,066. Based on Maxis’ statement of EBITDA and EBIT being flat qoq, we estimate that the optimisation costs were RM75m in 3Q23.

• Management does not expect further optimisation-related expenses in FY23F, and no guidance was provided for future years. The rationalisation came largely from the enterprise segment. We believe the exercise is to better streamline employee skillsets with new focus areas within the enterprise segment.

5G Negotiations Almost Concluded; Broadband Pricing Done

• Management is of the view that the 5G network negotiations between operators and all interested parties are almost done, with only minor items to be resolved. We maintain our view that CelcomDiGi and Maxis would each roll out 5G networks, and this is reflected in our capex estimates.

• Management clarified that the wholesale broadband pricing agreement with Telekom Malaysia would be signed shortly. It does not expect the wholesale broadband prices that it announced on 27 Oct 2023 to be revised. Management did acknowledge that the introduction of Mesh Wifi routers as a service, i.e. a rental subscription rather than an outright purchase, has helped lift Maxis’ home broadband ARPUs.

Reiterate Hold

• We maintain our Hold call on Maxis with a TP of RM4.26, based on 10.8x FY24F EV/EBITDA (-1 s.d. of its post-2010 range). Without an acceleration in earnings, we see Maxis’ 10.5x adjusted FY24F EV/EBITDA providing limited upside. Meanwhile, a 4.4% FY23-24F dividend yield provides downside support.

• Key upside risks would come from an acceleration in revenue/earnings growth, while slower earnings and a reduction in dividends would be key downside risks, in our view.

Source: CGS-CIMB Research - 10 Nov 2023