A Solid Set of Earnings

• Maxis’ 3Q20 core net profit grew by 8% qoq to RM338m, driven by a 2.1% increase in service revenue and lower allowance for doubtful debts. Notably, the 3Q20 core profit was 1% higher yoy due to lower device costs and higher revenue from enterprise services and fibre businesses.
• The results are broadly within market and our expectations. Cumulatively, Maxis’ 9M20 core net profit of RM1.06bn (-8% yoy) accounted for 73% of the street’s and 77% of our full-year earnings forecasts.
• Maintain HOLD. We lowered our target price to RM5.35 after raising our WACC to 5.7% (from 5.5%), taking into consideration the intensifying competition in the mobile space and the sector’s uninspiring earnings outlook.

3Q20 Core Profit Grew by 8% Qoq / 1% Yoy to RM338m

Maxis delivered a solid set of results: 3Q20 core net profit grew by 7.7% qoq to RM364m on higher service revenue of RM1.94bn (+2.1% qoq), lower allowance for doubtful debts (-59% to RM48m) and lower network costs. These more than offset a sequential increase in device and traffic costs. Yoy, Maxis’ 3Q20 core net profit grew by 0.8% on lower device costs. Maxis has maintained its quarterly DPS of 4 sen.

9M20 core net profit of RM1.06bn (-8%) was within market and our expectations

Cumulatively, Maxis’ 9M20 core net profit declined by 8.1% yoy to RM1.06bn due to the higher allowance for doubtful debts (+RM174m to RM265m) and increase in operating & maintenance costs (+24% to RM313m), partly cushioned by lower device (-9% to RM967m) and network costs. Maxis’ 9M20 service revenue fell by 0.4% yoy to RM5.78bn due to lower mobile service revenue (-5.7% to RM5.03bn), mitigated by higher contributions from the enterprise services (+91% to RM403m) and fibre businesses (+33% to RM346m). The results are broadly within market and our expectations – Maxis’ 9M20 core net profit accounted for 73% of the street’s and 77% of our full-year forecasts.

Operationally, the 3Q20 Performance Was Modest

In 3Q20, Maxis gained 62k active postpaid subs (+1.7% qoq to 3.75m) but lost 67k active prepaid subs (-1.1% qoq to 5.91m). The prepaid ARPU was unchanged at RM40 while the postpaid ARPU slipped RM1 qoq to RM84. Maxis observed strong pre-to-post momentum in 3Q20, partly driven by its Hotlink Postpaid plan. After a short-lived onequarter lead, Maxis has ceded its pole position in the prepaid segment (by number of total subs) to Digi, as Maxis lost some ground in 3Q20 while Digi has gained – Digi has 7.66m prepaid subs against Maxis’ 7.15m (including both active and inactive subs

Source: Affin Hwang Research - 26 Oct 2020