Maxis reported a modest set of results. While its 2019 core net profit of RM1.5bn was 15% lower yoy, the results were within market and our expectations and Maxis has maintained its full-year DPS of 20 sen. The weaker earnings yoy was due to lower service revenue from its wholesale segment and higher costs (opex, depreciation). Looking ahead, management expects a flat to low single-digit growth in its 2020 revenue and EBITDA. We raise our 2020-21 earnings forecasts by 3-4% after incorporating higher EBITDA and lower finance cost assumptions. We lift our DCF-derived TP to RM5.35 and upgrade Maxis to HOLD (from SELL) after taking into consideration the positive earnings outlook, good progress in its expansion plan and reduced risks of overbidding for the 5G spectrum.

Lower 2019 Core Net Profit of RM1.5bn (-15% Yoy), Within Expectations

Maxis’ 2019 core net profit fell by 15% yoy to RM1.5bn due to lower service revenue (-3.4% yoy) and higher costs. The decline in service revenue was mainly due to lower wholesale revenue (-71% yoy to RM136m) following the termination of the U-Mobile RAN sharing contract and a cut in the mobile termination rate. Meanwhile, Maxis has incurred higher capex and operating costs (ie. staff costs, traffic, commissions & other direct expenses) to grow its enterprise and home broadband businesses. Despite a weaker set of earnings, Maxis maintained its quarterly dividend of 5 sen per share (20 sen for 2019). All in, the results were within market and our expectations.

Sequentially, 4Q19 Earnings Fell by 5% Due to Higher Costs

Notwithstanding a higher service revenue of RM1.99bn (+2.7% qoq), Maxis’ 4Q19 core net profit fell by 4.7% qoq to RM344m due to higher operating expenses (staff costs, operating & maintenance, and other direct costs). Maxis booked higher device sales of RM576m in 4Q19 (+79% qoq); this low-margin business has further suppressed Maxis’ 4Q19 EBITDA margin (vs 3Q19).

Maxis Saw Higher Revenue Across Major Business Segments

Maxis has reported revenue growth across its key business segments (except mobile wholesale): (i) the mobile service revenue (exclude wholesale) grew by 0.7% yoy in 2019 driven by a 3.4% increase in the number of subscribers; (ii) home fibre revenue grew by 16% yoy on the back of a 45% increase in the number of subscribers; and (iii) Enterprise Fixed segment saw a notable revenue increase in 4Q19 (RM116m in 4Q19, versus RM69-72m per quarter in 2018-3Q19).

Source: Affin Hwang Research - 21 Feb 2020