Result

• Better 2Q earnings - Maxis reported a normalised PAT of RM360m in 2Q21, which increased 5.3% YoY and 7.8% YoY due to higher revenue.

• Higher revenue led by Postpaid – Quarterly revenue was higher (+5.3% YoY and +1.6% QoQ) at RM2.23b as service revenue grew 3.1% YoY and 1.5% QoQ) to RM1.99b due to higher Postpaid revenue as other segments were flat.

• Improved margin – Maxis achieved a normalized EBITDA margin of 50.9% vs 49.2% in 1Q21 with EBITDA at RM1b (+6.1% YoY and +4.9% QoQ).

• Postpaid maintained subscriber growth momentum - Postpaid subscribers increased 3% QoQ and 7% YoY to 3.64m following more subscribers in MaxisONE Plan and Hotlink Postpaid. However, Postpaid ARPU was slightly lower at RM81 (vs RM82 in 1Q21). Overall, the segment registered higher revenue of RM1b (+2.9% QoQ and +2.2% YoY).

• Lower prepaid subs – Maxis saw its prepaid subscribers decline to 5.94m (-2.3% QoQ and -0.6% YoY) while Prepaid ARPU was flat at RM38. As a result, Prepaid revenue decreased 0.7% QoQ and 0.1% YoY to RM685m.

• Stable gearing. Net debt/EBITDA was slightly lower at 2.35x (vs 2.43x in 1Q21) as operating free cash flow increased 34% QoQ to RM894m.

• Dividend declared. Maxis declared its second interim dividend of 4 sen, taking total dividend so far to 8 sen. We expect full year dividend of 16 sen which translates into a yield of 3.8%.

Earnings Outlook/Revision

• Results within expectation. 1H21 normalised PAT achieved 48% of our full year forecast despite falling 0.7% YoY to RM694m while six months revenue of RM4.49b accounted for 49% 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

• Upgrade to BUY with an unchanged target price of RM4.76 due to the recent selldown in share price. 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 - 2 Aug 2021