Maxis’ 1Q21 core net profit of RM334m (+5% QoQ, -7% YoY) was in line, at 22% of HLIB and 23% of consensus, considering the seasonally weaker quarter. Declared first interim dividend of 4.0 sen per share. Postpaid and prepaid acquisition momentums were sustained at the expense of ARPU erosion while. Home fibre and WBB were the silver linings with good trajectories on both sub base and ARPU developments. Reiterate HOLD on the back of unchanged DCF derived TP of RM4.88.

In line. 1Q21 core net profit of RM334m (+5% QoQ, -7% YoY) accounted for 22% and 23% of HLIB and consensus full year forecasts, respectively. This is deemed as in line on the back of seasonal weakness.

Dividend. Declared first interim tax exempt (single-tier) dividend of 4.0 (1Q20: 4.0) sen per share, representing 93% payout ratio. Ex-date on 28 May.

QoQ. Top line eased 2% dragged by both device (-8%) and service (-1%) revenues. Within service revenue, the declines in enterprise services (-12%) and mobile (-0.4%) were more than sufficient to offset the expansions in home fibre (+6%) and network income (+33%). However, core net profit grew by 5% to RM334m thanks to 1.5ppt EBITDA margin improvement and lower D&A (-1%) despite slightly higher effective corporate tax rate.

YoY. Revenue dipped 5% to RM2.2bn as the growths in enterprise services (+5%) and home fibre (+20%) were unable to offset the contractions in mobile (-2%) and device (-28%). In turn, bottom line fell further by 7% due to higher D&A (+10%), lower interest income (-30%) and higher effective corporate tax rate (1Q21: 26.3% vs 1Q20: 24.6%).

Postpaid. Subscriber base added by 30k (or +1%) QoQ to 3.5m in 1Q21 thanks to strong pre-to-post momentum with value accretive Hotlink Postpaid take-up. Meanwhile, ARPU eroded by RM1 QoQ to RM82 due to dilution from increasing Hotlink Postpaid entry level subscribers. Mobile internet usage per sub has decreased by 2% QoQ to 22.8GB per month.

Prepaid. Maxis added 133k (or +2%) subs QoQ to a base of 6.1m while ARPU was eroded by RM1 QoQ to RM38. Hotlink Prepaid Unlimited continues to have strong adoption. Mobile internet usage per sub gained 8% QoQ to 20.9GB per month.

Fibre. Added 21k (or 5%) QoQ in 1Q21 to top a total base of 465k which can be broken down into 423k and 42k of residential and business users, respectively. ARPU gained RM1 QoQ to RM108. There is a strong adoption of Maxis Postpaid Prime converged packages and higher end plans.

WBB. Subs gained 12k (or +10%) QoQ to a base of 138k supported by a higher APRU of RM111 (+RM7 QoQ). This is in line with Maxis strategy to address non-fibre homes leveraging on its ubiquitous premium 4G/LTE network.

Forecast. Unchanged as results is in line.

Reiterate HOLD with unchanged DCF-derived TP of RM4.88, with WACC of 6.1% and TG of 0.5%. Maxis is still the largest telco in terms of revenue market share with quality of service as differentiation to drive leadership in data adoption, but Covid -19 headwinds pose near term uncertainty.

Source: Hong Leong Investment Bank Research - 26 Apr 2021