3QFY21 CNP and DPS came within our expectations. Maxis’ Hotlink postpaid brand continued to bring new postpaid subs while its home broadband products remained popular despite the easing of lockdowns. Maxis continued to make strides in the enterprise segment with potentially more future acquisitions for talent and know-how. Post-Budget 2022, we lower our FY22E EPS by 10% to account for the one-off prosperity tax, and lower FY22E DPS from 18.0 sen to 16.0 sen accordingly. We maintain our MP call and RM4.55 TP, as we see the EPS impact as one-off, not a de-rating catalyst.

9MFY21 within. 3QFY21 core net profit of RM324m came within expectations, bringing 9MFY21 to 73% each of our and street’s estimates. DPS of 4.0 sen brings 9MFY21 DPS to 12.0 sen, in line with our FY21E DPS of 16.0 sen.

YoY, revenue rose 1%, as service revenue rose 2%, outweighing the 7% decline in device revenue. Service revenue growth was driven by both postpaid and fixed broadband segments. Postpaid revenue grew 3%, on continued adoption of Hotlink’s entry level postpaid plans. Home (fibre and FWA) subs rose 35%, driven by continued strong demand for home internet. As 9MFY21 saw lower opex vs. 9MFY20, adjusted EBITDA rose 3%. However, higher depreciation & amortization charges and effective tax rate weighed, dragging core net profit by 4.5%. D&A expense was higher because of the higher spectrum amortization costs, from management’s decision to reduce spectrum life.

QoQ, revenue remained flat, as the lower device revenue (-14%) negated the 2% service revenue gain, which was driven by the postpaid (+3%) and home (+5%) segments. While doubtful debts are firmly under control (thus, no allowance for the quarter) and device costs fell on lower device sales, higher operating costs (from one-time sales commissions and higher marketing costs) weighed and EBITDA fell 3%. The higher D&A expense further weighed, bringing EBIT down by 9%. The higher effective tax rate dragged, and core net profit fell by 13%.

Looking ahead, Maxis is looking to be the first local operator to offer 5G roaming regionally (e.g. Singapore & Thailand), and is expecting a gradual recovery in roaming revenue on border reopening. Note that roaming revenue made up 5% of total revenue pre-Covid, and is significantly smaller today. Similar to its peers, Maxis is focused on growing its Malaysian subs base to rely less on foreign subs, to reduce churn. Since April 2020, Maxis has conducted four acquisitions in ramping up its enterprise offerings, namely in cloud and managed services (refer Exhibit 1). Given their strategy of organic and inorganic growth in their enterprise segment, we may see more similar acquisitions in FY22. However, note that enterprise revenues have been slow to recover as businesses are still cautious with spending.

Post results and Budget 2022, we maintain our FY21E CNP but lower FY22E CNP by 10% to RM1,333m to account for the one-off 33% tax rate for PBT in excess of RM100m. We also reduce our FY22E DPS to 16.0 sen, as our previous estimate of 18.0 sen would’ve implied a payout ratio of >100% of its PAT, which we think is unlikely due to prudent cash management.

Maintain MARKET PERFORM with DCF-TP of RM4.55 (WACC: 7%; TG: 1.5%), as the results are within expectations. While the prosperity tax may weigh on FY22E earnings and near-term sentiment, the EPS reduction has an insignificant impact on our 10-year DCF valuation.

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 - 1 Nov 2021