Results

• Earnings momentum – Maxis’s 2Q23 net profit of RM329m in 2Q23 grew 2.2% YoY due to higher revenue and lower tax rate following the absence of Cukai Makmur.

• Overall higher revenue – Quarterly revenue was higher (+1.9% YoY) at RM2.47b thanks higher Service revenue (+1.4% YoY to RM2.11b). Under Service revenue, Consumer revenue rose 3.1% YoY to RM1.75b following gains in Postpaid (+7.5% YoY to RM871m), and Fibre (+16.2% YoY to RM201m) to cushion the decline in Prepaid (-4.1% YoY to RM651m) and Wireless Broadband. Meanwhile, Enterprise revenue grew 3.4% YoY to RM632m while Device sales gained 5% YoY to RM357m.

• Flat QoQ– Maxis’ 2Q23 net profit increased 2.8% QoQ despite lower revenue (-2.2% QoQ) of RM2.47b due to lower device costs (- 15.7% QoQ) in line with the decline in device sales (-13.8% QoQ).

• Improved margins – Maxis’ EBITDA margin was 2.1 ppts higher at 40.6% compared to the previous quarter as EBITDA increased 3.1% QoQ to RM1.0b due to lower device costs.

• Postpaid leading subs growth – Total subscribers inched up 68k QoQ to 9.839m amid higher subscribers in Postpaid (+52k to 3.449m) and Fibre (+21k to 622k) while Prepaid churn slowed to -2k to 5.684m mainly due migration to postpaid.

• Stable gearing. Net debt/EBITDA was lower at 2.41x (vs 2.47x in 4Q22) as net debt decreased 2.8% QoQ to RM9.54b while cash balance surged 51.5% QoQ to RM515m.

• Dividend declared. Maxis declared its second interim dividend of 4 sen, which lower than 5 sen previously. The management is conserving cash for future 5G investments. Hence, we are reducing our full year dividend forecast to 16 sen from 20 sen.

Earnings Outlook / Revision

• Results within expectation. 2Q23 net profit of RM649m (+6.2% YoY) achieved 43%/47% of our/consensus full year forecast while six months revenue of RM4.96b (+3.4% YoY) accounted for 51%/50% of our/consensus FY23 estimate.

• We keeping our earnings forecast for FY23 as we expect earnings to continue to be driven by Postpaid and the one-off Cukai Makmur expired in 2022 with corporate tax rate reverting 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. The management has lifted its 2023 service revenue to low single digit growth from flat to low, while EBITDA and capex guidance remained the same at similar levels with FY22 of RM3.9b and RM1.1b respectively.

Valuation and Recommendation

• Upgrade to BUY 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 5.6% with a long-term growth rate of 0.5%) and implies 19.7x FY23F PE based on EPS of 19.2 sen.

Source: JF Apex Securities Research - 10 Aug 2023