9MFY20 normalised earnings of RM1.06b (-8%) were within expectations but the 4.0 sen interim dividend declared is deemed a miss as MAXIS observes tight cash controls. The group will likely continue to be reactive with new products to capture market share. Meanwhile, management is also hopeful on strong growth from its enterprise segment in the medium-term, which is currently still a minor sales contributor. Maintain MP and DCF-driven TP of RM4.90 (WACC: 8.8%, TG: 1.5%).

9MFY20 deemed within. 9MFY20 normalised profit of RM1.06b is deemed to be in line with our/consensus estimates, making up 71%/73% of respective expectations. An interim dividend of 4.0 sen (YTD: 12.0 sen) is deemed to have missed our FY20E total payment of 18.0 sen as we believe a dividend windfall of 6.0 sen for 4QFY20 is unlikely.

YoY, 9MFY20 total revenue came in at RM6.71b with service revenue of RM5.78b, both flattish from 9MFY19. However, this is owing to a 6% decline in mobile revenue being offset by better enterprise (+91%) and home fibre (+33%) revenues. Segment-wise, Prepaid revenue (-11%) fell from sim deactivations aggravated by the MCO in addition to migrations to Postpaid. However, Postpaid revenue fell slightly (-1%) from a higher take-up of new lower entry plans. As of 3QFY20, Prepaid subscribers amounted to 5.91m with an ARPU of RM40/mth (3QFY19: 6.33m users, ARPU: RM41/mth) while Postpaid subscribers came in at 3.75m users and RM84/mth ARPU (3QFY19: 3.49m users, ARPU: RM106/mth). Normalised earnings registered at RM1.06b (-8%) on the back of greater depreciation from focused rollouts and more prudent impairments amidst the Covid-19 pandemic.

QoQ, 3QFY20 service revenue improved by 2% owing to re-activated customer acquisition activities and growth in overall Prepaid contribution, where the lower subscriber base was made up by slightly higher ARPU. This is possibly thanks to the new “Unlimited” Prepaid plans which hit the market. Coinciding with the higher topline, 3QFY20 normalised profits grew by 8% to RM364m.

Hanging on steadily. Despite concerns of ARPU dilution, the group has stayed relatively unscathed thanks to its strong move to provide converged solutions and maintaining its network quality. We see the move to provide lower entry Postpaid plans and “Unlimited” Prepaid plans as addressing the possible changes in consumer appetite for more value propositions. On this matter, management believes erosion of shareholder’s value would not be a concern as this strategy could be a means to reach out to untapped markets. On the flipside, management is optimistic that its enterprise segment should yield promising returns by the coming year, backed by sticky value propositions and new enterprise products. For now, the segment only contributes 6% of group service revenue but this has almost doubled since FY19.

Post-results, we leave our FY20E/FY21E assumptions relatively unchanged but trim our full-year dividend forecasts to 16.0 sen/18.0 sen (from 18.0 sen/19.0 sen) in anticipation of tighter cash flows ahead.

Maintain MARKET PERFORM and DCF-driven TP of RM4.90. We maintain our DCF assumptions (WACC: 8.8%, TG: 1.5%), closely within the stock’s 3-year average of its 12.0x EV/Fwd. EBITDA. The stock’s sustainable projections could be well-priced in at current price levels. While this may keep dividend prospects intact, it remains only slightly above industry average of 3%.

Risks to our call include: (i) higher/lower-than-expected service revenue growth, (ii) lower/higher-than-expected OPEX, and (iii) less/more aggressive competition.

Source: Kenanga Research - 26 Oct 2020