FY21 CNP fell short of our expectation on higher-than- expected device costs in 4QFY21, but met street’s estimates at 99%. A special DPS of 1.0 sen brought FY21 DPS to 17.0 sen, deemed as within our 16.0 estimate. Looking ahead, management will be mainly focused on growing its home and enterprise segments in 2022, with potentially more enterprise-related M&A. Post results, we lower FY22E CNP by 5% as we tweak our cost assumptions. We introduce FY23E CNP, implying a 20% growth, driven by normalization of tax rate and by fibre & enterprise growth. Maintain MP with DCF-TP of RM4.00.

FY21 fell short. 4QFY21 core net profit (CNP) of RM305m brought FY21 CNP to RM1.34b, falling short of our estimate at 94%, but meeting street’s estimate at 99%. Despite revenue projections coming in-line, earnings fell short due to higher-than-expected device costs, driven by seasonally strong device sales and subsidies. 4QFY21 DPS of 4.0 sen and special DPS of 1.0 sen (FY20 special DPS: 1.0 sen), brought FY21 DPS to 17.0 sen, within our 16.0 sen estimate, as we chose to be conservative by not expecting a special DPS in FY21.

YoY. FY21 CNP fell 6% mainly on higher D&A expense (driven by a prudent adoption of reduced spectrum life and increased amortization). Postpaid/prepaid ARPUs fell 5%/6%, respectively due to a softer price mix. Postpaid subs rose 9%, as entry-level products continued gaining traction, while prepaid subs remained stable. WBB continued to shine with 17% rise in ARPU and 68% jump in subs. Home Fibre ARPU rose 3%, subs rose 23%.

QoQ. CNP fell 6% mainly due to a 96% jump in device costs, as device revenue swelled by 85%. While Maxis’ home internet (fixed wireless + home fibre) subs growth rate slowed to 6% in 4QFY21 (2Q & 3QFY21: 9%), it’s still higher than the average QoQ growth rate of 4% pre- pandemic.

Outlook. In 2022, Maxis will be focused on growing its home internet and enterprise segments, but we note that growth of home products may not be as strong in FY22 as it was in FY21, as the work from home trend starts to fade. Maxis will likely continue using acquisitions and acquihires to strengthen and scale its enterprise capabilities. On 5G rollout, management has indicated that they have not signed anything with DNB, as with the other three large MNOs, as the industry is waiting for the Malaysian Government’s decision on the 5G rollout structure. For the time being, no guidance has been offered by the management as the current climate poses notable uncertainties.

Post results, we reduce FY22E CNP by 5% as we tweak our cost assumptions. We introduce FY23E CNP of RM1.52b, implying a 20% growth, on: (i) normalization of tax rate, and (ii) home internet and enterprise growth. We maintain our FY22E DPS of 16.0 sen, as potentially higher 5G capex/opex may reduce Maxis’ ability to pay a special dividend in FY22.

Maintain MARKET PERFORM with DCF-TP of RM4.00 (WACC: 7.4%; TG: 1.5%), as the earnings adjustment has an immaterial impact on our 10-year DCF valuation. Our TP of RM4.00 implies an EV/EBITDA of 10x, below -2SD of its 5-year mean. Thus, we believe the current price has priced in near-term uncertainties around the 5G rollout. 

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 - 25 Feb 2022