Result

Lower 3Q earnings - Maxis reported a normalised PAT of RM325m in 3Q21, which decreased 19.7% YoY and 9.7% QoQ mainly due to higher depreciation and higher investment into marketing costs. Depreciation increased by 22.5% YoY and 10.7% QoQ following the management’s prudent adoption of reduced spectrum life and in line with core and growth capex.

Steady revenue – Quarterly revenue was higher (+2.3% YoY and flat QoQ) at RM2.26b. Service revenue grew 2.9% YoY and 1.9% QoQ to RM2.03b as higher Postpaid revenue cushioned the decline in Devices.

Decreased margins – Maxis achieved a normalized EBITDA margin of 48.6% vs 50.9% in 2Q21 with EBITDA at RM984m (+1.7% YoY and -2.7% QoQ).

Postpaid maintained subscriber growth momentum - Postpaid subscribers increased 1.6% QoQ and 7.2% YoY to 3.7m following growth in MaxisONE and Hotlink plans as well as migration from Prepaid. Postpaid ARPU was flat at RM81. Overall, the segment registered higher revenue of RM1.03b (+2.8% QoQ and +7.2% YoY).

Flat prepaid subs – Maxis’ prepaid subscribers was flat at 5.94m (-0.1% QoQ and +0.5% YoY) while Prepaid ARPU was higher at RM39 vs RM38 in 2Q21. As a result, Prepaid revenue was flat QoQ but decreased 4.5% YoY to RM685m.

Lower gearing. Net debt/EBITDA was slightly lower at 2.31x (vs 2.35x in 2Q21) as operating free cash flow increased 19% QoQ to RM1.07b due to capital efficiency and lower USP payments.

Dividend declared. Maxis declared its third interim dividend of 4 sen, taking total dividend so far to 12 sen. We expect full year dividend of 16 sen which translates into a yield of 3.8%.

Earnings Outlook/Revision

Results within expectation. 9M21 normalised PAT achieved 71% of our full year forecast despite falling 4.7% YoY to RM1.02b while nine months revenue of RM6.75b accounted for 473% of our FY21 estimate.

We keeping our earnings forecast for FY21 as we expect earnings to pick up in 4Q21 as the recent reopening of economy would increase data usage. Management has remained cautious on the COVID-19 situation and has not guided on earnings outlook. However, we are reducing our FY22 EPS forecast by 11.7% as we expect 2022 tax payment to increase by RM147m to RM635m following the announcement of windfall tax in Budget 2022.

Major risks for the stock include: a) Strong competition, b) Higher-than-expected capex investment c) Change in regulatory risk

Valuation & Recommendation

Downgrade to HOLD with a lower target price of RM4.44 (previously RM4.68) after the windfall tax announcement in Budget 2022. Our target price is based on DCF valuation (WACC of 7.4% with a long-term growth rate of 2.7%) and implies 27.7x FY22F PE based on EPS of 16.8 sen.

Source: JF Apex Securities Research - 1 Nov 2021