Result

• Lower 2Q earnings - Maxis reported a PAT of RM329m in 2Q22, which decreased 8.6% YoY mainly due to higher tax rate of 33% under Cukai Makmur and higher amortization as a result of the prudent adoption of reduced spectrum life.

• Higher revenue – Quarterly revenue was higher (+6.6% YoY) at RM2.42b thanks to a surge in Devices sales (+23% YoY to RM340m) and Service revenue gained 4.3% YoY to RM2.08b. Under Service revenue, Consumer revenue rose 4.4% YoY to RM1.7b following gains in Postpaid (+5.6% YoY to RM810m) and Fibre (+22.7% to RM173m) while Prepaid revenue declined 0.9% YoY to RM679m.

• Better QoQ – Maxis’ 2Q22 net profit of RM329m climbed 10.4% QoQ due to lower depreciation as all 3G assets were fully depreciated after the 3G network shutdown in end-2021. Quarterly revenue was slightly higher (+0.7% QoQ to RM2.41b) due to higher Service revenue coupled with declined in Device sales.

• Higher margins – Maxis’ EBITDA margin climbed over 33 percentage points to 41.8% from 38.7% in 1Q22 as EBITDA grew 9% QoQ to RM1b.

• Subscribership rebound – Total subscribers climbed 172k QoQ to 9.69m to reverse the decline in 1Q21 following higher subscribers in Postpaid (+56k to 3.25m) and Prepaid (+93k to 5.81m).

• Improved gearing. Net debt/EBITDA declined to 2.35x (vs 2.45x in 1Q22) as cash reserves surged 60.6% QoQ to RM853m while net debt reduced 4% QoQ to RM9.0b.

• Dividend declared. Maxis declared its second interim dividend of 5 sen. We are raising our FY22 dividend forecast to 20 sen (from 17 sen previously), which translates into an attractive yield of 5.6%.

Earnings Outlook/Revision

• Results within expectation. 1H22 PAT of RM627m (-9.7% YoY) achieved 48% of our full year forecast while six months revenue of RM4.83b (+7% YoY) accounted for 48% 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

• Management guidance. After the previous uncertainty due to Covid-19, the management has reintroduced its guidance for 2022, namely: a) low t- mid single digit increase in Service Revenue and b) Flat to low single digit increase in EBITDA

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM4.44. Our target price is based on DCF valuation (WACC of 5.6% with a long-term growth rate of 0.5%) and implies 21.5x FY22F PE based on EPS of 16.8 sen.

Source: JF Apex Securities Research - 29 Jul 2022