Maxis’ 1H22 core net profit of RM699m (+1% YoY) matched our expectation but above consensus. Declared second interim DPS of 5.0 sen. Postpaid sub base grew along with firmer ARPU development thanks to increased international outbound roaming. Home connectivity was the silver lining with connections up 18% YoY. The newly introduced FY22 guidance implies top line growth along with improving margin. Reiterate HOLD on the back of higher DCF-derived TP of RM3.51.

Within expectation. 2Q22 core net profit of RM375m (+16% QoQ, +4% YoY) brought 1H22’s to RM699m (+1%), which match our full year forecast at 50% but exceeded consensus at 55%. We computed our core earnings figure after adjusting for prosperity tax which is estimated to be RM72m.

Dividend. Declared second interim single-tier tax-exempt dividend of 5.0 sen (2Q21: 4.0 sen) per share, representing 119% payout ratio and going ex on 29 Aug. 1H22 DPS amounted to 10 sen vs 1H21’s 8 sen.

QoQ. Top line gained 1% as the expansion in service revenue (+3%) was more than sufficient to offset the weakness in device sales (-10%). Within service revenue, consumer business strengthened by 3% to RM1.7bn while enterprise business was down by 1% to RM386m. However, core net profit grew by 16% to RM375m thanks to higher EBITDA margin by 3.1ppt.

YoY. Revenue increased 7% thanks to higher contributions from both service and non service revenues. Service revenue increased by 4% supported by the growths in Mobile (+3%) and Home Fibre (+24%). Bottom line was lifted by 4% on the back of higher D&A (+3%).

YTD. Although turnover was higher by 8%, core earnings only grew by 1% as EBITDA margin shrunk by 3.1ppt mainly due to higher device costs.

Postpaid. Subscriber base added by 56k (or +2%) QoQ to 3.2m in 2Q22 supported by both primary and shared lines, as well as Hotlink Postpaid. ARPU was RM1 higher QoQ to RM79 attributable to increased international outbound roaming.

Prepaid. Experienced subscriber addition of 93k QoQ to a base of 5.8m while ARPU inched higher (+RM1.40 QoQ) to RM39.10. Adoption of Hotlink Prepaid Unlimited was resilient while Hotlink Prepaid Pantas was catered for new under-served segments.

Home connectivity. Recorded strong numbers with connections up 18% YoY and an increase in service revenue by 19% to RM209m. Home Fibre saw an additional 24k connections in 2Q22 on the back of strong distribution channel strategy and marketing success to drive more converged penetration and first-time broadband users.

FY22 guidance. (i) Service revenue: low to mid-single digit increase; and (ii) EBITDA: flat to low single digit increase.

Forecast. Tweak projections based on new guidance and our FY22-24 EPS are trimmed by -1%, -1% and -2%, respectively. Reiterate HOLD with a higher DCF-derived TP of RM3.51 (previously RM3.19), with WACC of 7.0% (previously 7.1%) and TG of 1.0% (previously 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 government’s decision on national 5G infrastructure plan pose near term uncertainty.

Source: Hong Leong Investment Bank Research - 29 Jul 2022