Result

• Maxis reported a normalised PAT of RM334m in 1Q21, which dropped 6.2% YoY, due to lower revenue and higher depreciation and amortization, but grew 4.7% QoQ mainly due to lower device costs.
   
• Steady service revenue – Quarterly revenue was lower (- 4.8% YoY and -1.5% QoQ) at RM2.23b due to lower Device revenue (-28% YoY and -7.6% QoQ to RM269m). Similarly, service revenue declined slightly (-0.5% YoY and -0.6% QoQ) to RM2.26b due to lower Mobile revenue (both Postpaid and Prepaid).
   
• Improved EBITDA margin – Maxis achieved a normalized EBITDA margin of 49.2% vs 47.7% in 4Q20 with EBITDA at RM939m (-0.6% YoY and -2.9% QoQ).

• Higher postpaid subs - Postpaid subscribers increased 0.9% QoQ and 3.5% YoY to 3.54m following more subscribers in MaxisONE Plan and Hotlink Postpaid. However, Postpaid ARPU was slightly lower at RM82 (vs RM83 in 4Q20). As a result of lower ARPU, the segment registered flat revenue of RM974m (- 0.1% QoQ and -1.4% YoY).

• Slower prepaid revenue – Maxis saw its prepaid subscribers climb to 6.08m (+2.2% QoQ and +3.4% YoY) while Prepaid ARPU was slightly lower at RM38 vs RM39 in 4Q20. As a result, Prepaid revenue decreased 0.9% QoQ and 3.4% YoY to RM690m.

• Stable gearing. Net debt/EBITDA was flat at 2.43x (vs 2.41x in 4Q20). Operating free cash flow declined 11% YoY and 41% QoQ to RM667m mainly due to higher USP payment of RM300m.

• Dividend declared. Maxis declared its first interim dividend of 4 sen. We are expecting full year dividend of 16 sen which translates into a dividend yield of 3.4%.

Earnings Outlook/Revision

• Results within expectation. 1Q21 normalised PAT of RM334m achieved 23% of our full year forecast while three months revenue of RM2.23b accounted for 25% of our FY21 estimate.

• We keeping our earnings forecast for FY21. 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 capex investment c) Change in regulatory risk

Valuation & Recommendation

• Maintain 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 - 26 Apr 2021