2QFY21 CNP of RM371m brought 1HFY21 CNP to 50% of our FY21 estimate. DPS of 4.0 sen brings 1HFY21 DPS to 8.0 sen, as expected. MAXIS continues to gain postpaid subs from its converged offerings but entry plans are diluting ARPU. Home offerings are performing well amidst extended lockdowns. We think the market’s lingering fears about MAXIS’ lack of differentiation among consumers in the 5G space will continue to weigh on share price, especially as 5G enterprise services are unlikely to bear fruit in the near-future. We lowered FY22E revenue/CNP by 2% each on lower prepaid subs and weaker prepaid ARPU. Maintain MP on lower TP of RM4.55 (from RM4.70).

1HFY21 within. 2QFY21 core net profit of RM371m came within expectations, bringing 1HFY21 to 50%/49% of our/street's estimates. DPS of 4.0 sen brings 1HFY21 DPS to 8.0 sen, in line with our FY21E DPS of 16.0 sen.

YoY, 1HFY21 CNP rose 0.7% as revenue remained unchanged. Postpaid revenue remained stagnant as over the period, a 6% rise in subs cushioned the 5% drop in ARPU. Prepaid revenue fell 2% as a 4% drop in ARPU outweighed the 1% rise in prepaid subs. Enterprise revenue rose by 5% likely on higher enterprise spending on digital channels. Home fibre revenue rose by an impressive 23%.

QoQ, Revenue rose 2% on: (i) 3% bump in postpaid revenue, driven by 3% growth in subs and encouraging take-up of its fixed wireless product, (ii) 5% growth in home fibre revenue, and (iii) 3% increase in device revenue. Adjusted EBITDA rose 5% on: (i) non-recurring lower operation & maintenance costs, and (ii) lower provision for doubtful debt on stringent collection management, while core net profit rose by 9%.

Strong growth in Home. Maxis' fixed wireless (WBB) subs grew 21% QoQ and 70% YoY as it is proving popular among those in areas without fibre coverage. WBB ARPU continued to rise towards RM138, the price of its only WBB product. Its home fibre subs continued to grow (5% QoQ, 20% YoY) on greater fibre coverage and higher demand amidst lockdowns. Home fibre ARPU maintained an upwards trend as subs upgraded to plans with higher speeds. That said, WBB and fibre currently only make up <10% of Maxis' revenue.

Lingering fears on the lack of differentiation. As Maxis has long differentiated itself with its premium brand and superior network, we think the market is still worried about the erosion of this differentiation among consumers when all telcos share access to the same 5G network. While the telcos will rely on 5G enterprise solutions for differentiation, we don't foresee that to yield any meaningful results in the near future.

Post results, we maintain FY21E estimates, and lower FY22E revenue/CNP by 2% each as we lower our prepaid assumptions on continued competition from non-Big 3 telcos.

Maintain MARKET PERFORM on lower DCF-TP of RM4.55 (from RM4.70) as we think the aforementioned fears continue to linger. Importantly, we don't see any near-term rerating catalysts that will drive the share price. MAXIS currently trades at 11.2x EV / FY21E EBITDA vs. our DCF-TP implied 11.7x, at -2SD of its 5-year mean.

Source: Kenanga Research - 2 Aug 2021