Result

• Lower 1Q earnings - Maxis reported a PAT of RM298m in 1Q22, which decreased 11% YoY mainly due to higher depreciation related to the spectrum rights amortization.

• Higher revenue – Quarterly revenue was higher (+7.4% YoY) at RM2.4b thanks to a surge in Devices sales (+40% YoY to RM376m as Service revenue gained 3% YoY to RM2.03b.

• Better QoQ – Maxis 1Q22 net profit of RM298m climbed 3% QoQ due to lower direct costs, depreciation and finance costs. This was despite quarterly revenue falling 2% QoQ mainly due to lower device sales (-14.5% QoQ).

• Flat margins – Maxis posted a EBITDA margin of 38.7% vs 37.9% in 4Q21 with a flat EBITDA of RM930m due to higher device costs.

• Prepaid subscriber clean up – Total subscribers declined to 9.52m from 9.67m in 4Q21, mainly due to lower Prepaid subscribers (-4% QoQ to 5.72m) following a clean up of nonactive accounts.

• Higher gearing. Net debt/EBITDA climbed to 2.45x (vs 2.32x in 4Q21) as cash reserves dropped 55% QoQ to RM531m due to higher payments of regulatory compliance costs and capex.

• Dividend declared. Maxis declared its first interim dividend of 5 sen. We expect full year dividend of 17 sen/share which translates into a yield of 4.5%.

Earnings Outlook/Revision

• Results within expectation. 1Q22 PAT achieved 23% of our full year forecast while revenue accounted for 25% of our FY22 estimate.

• We keeping our earnings forecast for FY22 and FY23 as we expect earnings to pick up as the reopening of economy would increase data usage.

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

Valuation & Recommendation

• Upgrade to BUY from HOLD with an unchanged target price of RM4.44 following the recent decline 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 27.7x FY22F PE based on EPS of 16.8 sen.

Source: JF Apex Securities Research - 29 Apr 2022