Maxis’ FY21 core net profit of RM1.3bn (-5% YoY) was below expectations. Major deviation was higher-than-expected D&A. Declared fourth interim DPS of 5.0 sen elevating FY21’s to 17 sen. Postpaid sub base grew amid pre-to-post migration with value accretive Hotlink Postpaid take-up. Prepaid base also expanded but at the expense of ARPU. Home connectivity was the silver linings with good trajectories on both sub base and ARPU developments. Reiterate HOLD on the back of lower DCF-derived TP of RM4.22.

Below expectations. 4Q21 core net profit of RM289m (-11% QoQ, -9% YoY) brought FY21’s total to RM1.3bn (-5% YoY) which missed our and consensus expectations, accounting for 94.8% and 94.6% of full year forecasts, respectively. Major deviation was higher-than-expected D&A.

Dividend. Declared fourth interim tax exempt (single-tier) DPS of 5.0 sen (4Q20: 5.0 sen), going ex on 14 Mar. FY21 DPS amounted to 17.0 sen vs FY20’s 17.0 sen, representing 102% payout ratio.

QoQ. Top line grew 8% as the expansion in device sales (+85%) was more than sufficient to offset the decline in service revenue. The contraction in service revenue was caused by mobile (-1%) neutralizing the gains in enterprise services (+10%) and home fibre (+7%), while network income was flat. However, core net profit fell by 11% to RM289m impacted by higher device (+96%) and O&M (+12%) costs.

YoY. Revenue increased 8% thanks to higher contributions from home fibre (+25%), network income (+33%) and device (+51%), more than sufficient to offset the decline in enterprise services (-2%) while mobile was rather flat. Nevertheless, bottom line decreased by 9% also attributable to higher D&A (+14%) and cost base: device costs (+47%), staff and resources (+17%) and marketing (+87%).

YTD. Turnover was 3% higher led by home fibre (+24%), followed by network income (+9%), device sales (+8%) while mobile and enterprise services were rather flat. Core earnings dipped -5% as cost savings were offset by higher D&A (+12%).

Postpaid. Subscriber base added by 73k (or +2%) QoQ to 3.8m in 4Q21 thanks to strong pre-to-post momentum with value accretive Hotlink Postpaid take-up. ARPU was slightly lower QoQ at RM79 due to Hotlink Postpaid dilution effect. Mobile internet usage per sub has decreased by 1% QoQ to 27GB per month.

Prepaid. Maxis acquired 22k subs QoQ to a base of 6.0m at the expense of ARPU as it inched lower (-RM2 QoQ) to RM37. Hotlink Prepaid Unlimited continues to have resilient adoption. Mobile internet usage per sub was flat at 23GB per month.

Home connectivity. Fibre added 24k (or 5%) QoQ in 4Q21 to top a total base of 536k which can be broken down into 494k and 42k of residential and business users, respectively. ARPU gained RM2 QoQ to RM110. WBB subs gained 15k (or +8%) QoQ to a base of 212k supported by a higher APRU of RM130 (+RM5 QoQ).

Forecast. Tweak projections based on deviations above and our FY22-23 EPS are trimmed by -4% and -8%, respectively. Reiterate HOLD with a lower DCF-derived TP of RM4.22 (previously RM4.37), with WACC of 5.9% (previously 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 government’s decision on national 5G infrastructure plan pose near term uncertainty.

Source: Hong Leong Investment Bank Research - 25 Feb 2022