Results

• Lower earnings - Maxis reported a PAT of RM239m in 4Q22, which dropped 17.3% YoY mainly due to higher tax rate of 33% under Cukai Makmur.

• Higher revenue – Quarterly revenue was higher (+4% YoY) at RM2.55b thanks higher Service revenue (+5% YoY to RM2.11b). Under Service revenue, Consumer revenue rose 8% YoY to RM1.75b following gains in Postpaid (+11% YoY to RM850m), Prepaid (+4% YoY to RM681m) and Home Connectivity grew 11.7% YoY to RM219m.

• Lower QoQ due to device costs – Maxis’ 4Q22 net profit of RM239m dropped 24.1% QoQ due higher device costs (+44% QoQ to RM550m). Quarterly revenue grew 6% QoQ to RM2.55b due to higher Device Sales (48% QoQ to RM440m) as Service revenue was flat (+0.3% QoQ to RM2.11b).

• Eroded margins – Maxis’ EBITDA margin was 3.1 ppts lower at 38.7% compared to the previous quarter as EBITDA declined 1.8% QoQ to RM988m due to higher device costs to tie in customers under contracts of 2-3 years.

• Maintain subscriber momentum – Total subscribers climbed 46k QoQ to 9.797m following higher subscribers in Postpaid (+72k to 3.34m), Prepaid (-43k to 5.79m) and Home Connectivity (+17k to 669k).

• Stable gearing. Net debt/EBITDA was flat at 2.35x (vs 2.36x in 3Q22) as operating free cash flow increased 20% QoQ to RM970m.

• Dividend declared. Maxis declared its fourth interim dividend of 5 sen, meeting our FY22 full year dividend forecast of 20 sen, which translates into an attractive yield of 5.3%.

Earnings Outlook / Revision

• Results within expectation. FY22 PAT of RM1.18b (-9.7% YoY) achieved 90%/92.7% of our/consensus full year forecast while twelve months revenue of RM9.79b (+6% YoY) accounted for 103%/103% of our/consensus FY22 estimate.

• We keeping our earnings forecast for FY23 as we expect earnings to pick up as the one-off Cukai Makmur expired in 2022 and corporate tax rate revert back to 24%.

• Major risks for the stock include: a) Price competition and threat from Digi-Celcom merger, b) Higher-than-expected capex investment c) Heightened regulatory risk by the new government

• Management guidance. After achieving its 2022 targets of low- to mid-single digit increase in Service Revenue and flat to low singledigit increase in EBITDA, the management has guided 2023 service revenue with flat to low single digit growth.

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 longterm growth rate of 0.5%) and implies 21.5x FY23F PE based on EPS of 16.8 sen.

Source: JF Apex Securities Research - 24 Feb 2023