Maxis’ 9M21 core net profit of RM1bn (-4% 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 amid pre-to-post migration with value accretive Hotlink Postpaid take-up. Home connectivity was the silver linings with good trajectories on both sub base and ARPU developments. Reiterate HOLD on the back of lower DCFderived TP of RM4.37.

Below HLIB but matched street. 3Q21 core net profit of RM325m (-10% QoQ, -11% YoY) brought 9M21’s total to RM1bn (-4% YoY) which missed our full year forecast accounting for 70% but matched consensus at 72%. Major deviations were lowerthan-expected revenue and higher-than-expected D&A.

Dividend. Declared third interim tax exempt (single-tier) DPS of 4.0 sen (3Q20: 4.0 sen), representing 95% payout ratio and going ex on 30 Nov. YTD DPS amounted to 12.0 sen vs 9M20’s 12.0 sen

QoQ. Top line was flat as the expansion in service revenue was neutralized by the decline in device sales. The gain in service revenue was led by home fibre (+5%), followed by mobile (+2%) and enterprise services (+2%), while network income was flat. However, core net profit fell by 10% to RM325m impacted by higher traffic, commissions and other direct costs (+14%) and D&A (+7%).

YoY. Revenue increased 2% thanks to higher contributions from home fibre (+24%), network income (+4%) and mobile (+2%), more than sufficient to offset the declines in enterprise services (-8%) and device (-3%). In turn, bottom line decreased by 11% also attributable to higher D&A (+23%) and tax rate (26.3% vs 3Q20’s 25.8%).

YTD. Turnover was 1% higher as the drag from device (-7%) was neutralized by the expansions in home fiber (+23%), network income (+3%) and enterprise services (+1%), while mobile was flat. Core earnings dipped -4% as cost savings were offset by higher D&A.

Postpaid. Subscriber base added by 57k (or +2%) QoQ to 3.7m in 3Q21 thanks to strong pre-to-post momentum with value accretive Hotlink Postpaid take-up. ARPU was unchanged QoQ at RM81 as Hotlink Postpaid has positive ARPU development. Mobile internet usage per sub has increased by 10% QoQ to 28GB per month.

Prepaid. Maxis lost 5k subs QoQ to a base of 6.0m while ARPU was inched higher (+RM1 QoQ) to RM39. Hotlink Prepaid Unlimited continues to have resilient adoption. Mobile internet usage per sub decreased by 2% QoQ to 23GB per month.

Home connectivity. Fibre added 25k (or 5%) QoQ in 3Q21 to top a total base of 512k which can be broken down into 470k and 42k of residential and business users, respectively. ARPU fell RM1 QoQ to RM108. WBB subs gained 30k (or +18%) QoQ to a base of 197k supported by a higher APRU of RM125 (+RM5 QoQ).

Forecast. Tweak projections based on deviations above and our FY21-23 EPS are trimmed by -5%, -4% and -2%, respectively.

Reiterate HOLD with a lower DCF-derived TP of RM4.37 (previously 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 - 1 Nov 2021