Maxis’ 1H21 core net profit of RM694m (-1% YoY) was below HLIB’s forecast but in line with consensus. Major deviations were lower-than-expected revenue and higher-than-expected D&A. Declared second interim DPS of 4.0 sen. Postpaid sub base grew at the expense of ARPU and prepaid amid pre -to-post migration. Home fibre and WBB were the silver linings with good trajectories on both sub base and ARPU developments. Reiterate HOLD on the back of lower DCFderived TP of RM4.42.

Below HLIB but matched street. 2Q21 core net profit of RM360m (+8% QoQ, +7% YoY) brought 1H21’s total to RM694m (-1% YoY) which missed our full year forecast accounting for 46% but matched consensus at 48%. Major deviations were lowerthan-expected revenue and higher-than-expected D&A.

Dividend. Declared second interim tax exempt (single-tier) DPS of 4.0 sen (2Q20: 4.0 sen), representing 87% payout ratio and going ex on 2 Sep. YTD DPS amounted to 4.0 sen vs 1H20’s 4.0 sen

QoQ. Top line gained 2% driven by both device (+3%) and service (+2%) revenues. Within service revenue, the growths in home fibre (+5%) and mobile (+1%) were more than sufficient to offset the declines in enterprise services (-1%) while network income was flat. In turn, core net profit grew by 8% to RM360m thanks to 1.4ppt EBITDA margin improvement despite higher D&A (+4%).

YoY. Revenue increased 5% thanks to higher contributions from all segments led by home fibre (+26%), followed by device (+24%), network income (+9%), enterprise services (+6%) and mobile (+1%). As a result, bottom line improved 7% attributable to lower cost structure despite higher D&A (+11%).

YTD. Turnover was flat as the drags from device (-8%) and mobile (-1%) neutralized the expansions in home fiber (+23%), enterprise services (+6%) and network income (+2%). Core earnings dipped -1% as cost savings were offset by higher D&A.

Postpaid. Subscriber base added by 104k (or +3%) QoQ to 3.6m in 2Q21 thanks to strong pre-to-post momentum with value accreti ve Hotlink Postpaid take-up. While, ARPU eroded by RM1 QoQ to RM81 due to dilution from increasing Hotlink Postpaid entry level subscribers. Mobile internet usage per sub has increased by 12% QoQ to 25.6GB per month.

Prepaid. Maxis lost 142k (or 12%) subs QoQ to a base of 6.0m while ARPU was flattish at RM38. Hotlink Prepaid Unlimited continues to have strong adoption. Mobile internet usage per sub gained 14% QoQ to 23.7GB per month.

FTTH/FWA. Fibre added 22k (or 5%) QoQ in 2Q21 to top a total base of 487k which can be broken down into 444k and 43k of residential and business users, respectively. ARPU gained RM1 QoQ to RM109. WBB subs gained 29k (or +21%) QoQ to a base of 167k supported by a higher APRU of RM114 (+RM3 QoQ).

Forecast. Tweak projections based on deviations above and our FY21-23 EPS are trimmed by -4%, -5% and -9%, respectively.

Reiterate HOLD with a lower DCF-derived TP of RM4.42, with WACC of 6.1% and TG of 0.5%, reflecting the downward earnings revision. 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 - 2 Aug 2021