Results

• Lower 3Q earnings - Maxis reported a PAT of RM315m in 3Q22, which decreased 3% YoY mainly due to higher tax rate of 33% under Cukai Makmur.

• Higher revenue – Quarterly revenue was higher (+6% YoY) at RM2.41b thanks to a surge in Devices sales (+25% YoY to RM297m) and Service revenue gained 3.7% YoY to RM2.11b. Under Service revenue, Consumer revenue rose 4.1% YoY to RM1.72b following gains in Postpaid (+6% YoY to RM830m) and Fibre (+21.6% to RM180m) while Prepaid revenue declined 1.3% YoY to RM676m and Wireless Broadband revenue dropped 5.4% YoY to RM35m.

• Lower QoQ – Maxis’ 3Q22 net profit of RM315m dropped 4.3% QoQ due to lower EBITDA and higher amortisation. Quarterly revenue was slightly lower (-0.8% QoQ to RM2.41b) due to lower Device Sales (-12.6% QoQ to RM297m) despite higher Service revenue (+1.2% QoQ to RM2.11b).

• Stable margins – Maxis’ EBITDA margin was unchanged at 41.8% compared to the previous quarter as EBITDA declined 0.8% QoQ to RM1b.

• Subscriber momentum – Total subscribers climbed 57k QoQ to 9.75m following higher subscribers in Postpaid (+26k to 3.27m), Prepaid (+26k to 5.3m) and Home Connectivity (+14k to 652k).

• Improved gearing. Net debt/EBITDA inched up to 2.36x (vs 2.35x in 2Q22) as operating free cash flow declined 26% QoQ to RM812m.

• Dividend declared. Maxis declared its third interim dividend of 5 sen. We are expecting FY22 full year dividend of 20 sen, which translates into an attractive yield of 5.3%.

Earnings Outlook / Revision

• Results within expectation. 9M22 PAT of RM942m (-7.6% YoY) achieved 72%/73% of our/consensus full year forecast while nine months revenue of RM7.24b (+6.6% YoY) accounted for 76%/76% of our/consensus 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. The management has maintained its guidance for 2022, namely: a) low- to mid-single digit increase in Service Revenue and b) Flat to low single digit increase in EBITDA

• DNB pending – Last week, Maxis announced it will seek shareholders’ approval to enter into the 5G access agreement with Digital Nasional Bhd. It aims to complete the approvals process by January 2023 and then launch its 5G services.

Valuation and 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 - 7 Nov 2022