Result

• Maxis reported a normalised PAT of RM319m in 4Q20, which dropped 7% yoy and 12% qoq mainly due to higher device costs in line with higher volume of postpaid contracts.
   
• Steady service revenue – Quarterly revenue dropped 12% YoY to RM2.26b due to lower device revenue of RM298m (-48% YoY) but rose 2% QoQ as all segments improved except Prepaid and Network. Meanwhile, Service revenue (excluding device and network) dropped 1.6% YoY and climbed 0.3% QoQ.
   
• Lower EBITDA margin – Maxis achieved a normalized EBITDA margin of 41.5% vs 43.7% in 3Q20 with EBITDA at RM939m (- 0.6% YoY and -2.9% QoQ).

• Higher postpaid subs - Postpaid subscribers increased 1.7% QoQ and 4.4% YoY to 3.51m following more subscribers in MaxisONE Plan and Hotlink Postpaid. However, Postpaid ARPU was slightly lower at RM83 (vs RM84 in 3Q20. The segment registered a higher revenue of RM967m (+1.2% QoQ and -0.7% YoY).

• Slower prepaid revenue – Maxis saw its prepaid subscribers climb to 5.95m (+0.7% qoq and -4.4% yoy) while Prepaid ARPU was slightly lower at RM39 vs RM40 in 3Q20. As a result, Prepaid revenue decreased 2.9% QoQ and 11% YoY to RM696m.

• Stable gearing. Net debt/EBITDA dropped to 2.41x (vs 2.44x in 3Q20) following higher cash reserve of RM705m vs RM606m in 2Q20. Operating free cash flow improved significantly to RM1.14b in 4Q20 (+46% QoQ and +50% YoY) following Maxis’ working capital initiatives.

• Dividend declared. Maxis declared its third interim dividend of 4 sen plus a special dividend of 1 sen, taking total dividend declared so far to 17 sen. This meets our full year dividend forecast of 16 sen and translates into a dividend yield of 3.6%.

Earnings Outlook/Revision

• Results below expectation. FY20 normalised PAT of RM1.38b (-8% YoY) achieved 88% of our full year forecast while twelve months revenue of RM8.97b (-4% YoY) accounted for 100% of our FY20 estimate.

• We reducing our earnings forecast for FY21 by 11.6% to RM.43b but keeping our revenue estimate. Management has remained cautious on the COVID-19 situation and has not guided on FY21 earnings.

• Major risks for the stock include: a) Strong competition from a new price war, b) Higher-than-expected 5G capex investment c) Change in regulatory risk and

Valuation & Recommendation

• Upgrade to HOLD with an unchanged target price of RM4.76. Our target price is based on DCF valuation (WACC of 7.4% with a long term growth rate of 2.7%) and implies 25.9x FY21F PE based on EPS of 18 sen.

Source: JF Apex Securities Research - 1 Mar 2021