Maxis’ 1Q22 core net profit of RM324bn (+12% QoQ, -3% YoY) was below our expectation. Major deviation was higher-than-expected cost structure. Declared first interim DPS of 5.0 sen. Postpaid sub base grew amid pre-to-post migration with value accretive Hotlink Postpaid take-up. Prepaid base shrunk but ARPU gained. Home connectivity was the silver lining with connections up 19% YoY and an increase in service revenue by 21% to RM200m. Reiterate HOLD on the back of lower DCF-derived TP of RM3.96.

Below expectation. 1Q22 core net profit of RM324m (+12% QoQ, -3% YoY) missed our expectation, accounting for 22.7% of our full year forecast, but matched consensus at 24.5%. Major deviation was higher-than-expected cost structure. We computed our core earnings figure after adjusting for prosperity tax which estimated to be RM26m.

Dividend. Declared first interim single-tier tax-exempt dividend of 5.0 sen (1Q21: 4.0 sen) per share, going ex on 30 May. This represents a 132% payout ratio.

QoQ. Top line fell 2% dragged by weaker non-service revenue (mainly device sales) which more than offset the 1% gain in service revenue. Within service revenue, consumer business strengthened by 2% to RM1.6bn while enterprise business was down by 3% to RM388m. However, core net profit grew by 12% to RM324m thanks to higher EBITDA margin by 1.0ppt as well as lower D&A (-7%).

YoY. Revenue increased 8% thanks to higher contributions from both service and non service revenues. Service revenue increased by 3% driven by both consumer and enterprise businesses expanded which rose 2% and 5%, respectively. In spite of that, bottom line lost 3% attributable to higher cost structure and D&A (+8%).

Postpaid. Subscriber base added by 50k (or +2%) QoQ to 3.2m in 1Q22 thanks to strong pre-to-post momentum with value accretive Hotlink Postpaid take-up. ARPU was RM1 lower QoQ to RM78 due to Hotlink Postpaid dilution effect.

Prepaid. Maxis experienced subscriber attrition of 241k QoQ to a base of 5.7m while ARPU inched higher (+RM1 QoQ) to RM38. Hotlink Prepaid Unlimited and Hotlink Prepaid Pantas plans continue to have resilient adoption.

Home connectivity. Recorded strong numbers with connections up 19% YoY and an increase in service revenue by 21% to RM200m. Home Fibre saw an additional 24k connections in 1Q22 alone driven by strong adoption of Maxis Unlimited Postpaid & Fibre converged packages.

Enterprise business. Revenue increased to RM388m as Maxis continues to build a strong foundation of accounts in its journey to become the No.1 ICT Solutions Provider.

Jendela. Achieved commercial targets in 1Q22 by accelerating capacity for both mobile and fixed with 12 new sites, 609 upgraded and expanding fibre footprint to 3k premises passed.

Forecast. Tweak projections based on deviations above and our FY22-23 EPS are trimmed by -3% and -2%, respectively. Reiterate HOLD with a lower DCF-derived TP of RM3.96 (previously RM4.22), with WACC of 6.1% (previously 5.9%) 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 - 29 Apr 2022