MAXIS’ 1QFY22 results came in line with a strong top-line, underpinned by service revenue. However, subscription under its Consumer Business was flat dragged by Prepaid but offset by positive growth from both Postpaid and Home Connectivity. No change to our TP of RM4.00 but given the sharp share price correction recently, we upgrade it to OUTPERFORM given its attractive dividend yields.

1QFY22 within expectation. 1QFY22 core net profit of RM300m came within expectations, accounting for 24%/22% of our/consensus estimates. DPS of 5.0 sen is in line with our FY22E DPS of 16.0 sen.

YoY, Revenue saw a 8% uptick to RM2.41b with the Service Revenue achieving a 3% growth to RM2.03b on the back of improving Consumer (+2%) to RM1.64b and Enterprise Business (+5%) to RM388m. Consumer Subscribers (Postpaid, Prepaid and Home Connectivity (Blended Home Fibre & WBB) was flat at 9.52m subscription; dragged by prepaid (-6%) with both Postpaid and Home Connectivity saw growth at 9.2% and +9.2% to 3.19m and 0.62m subscription, respectively. Adjusted EBITDA fell 3% to RM930m due to increase in contracted device volume subsidies while the drop in EBIT (-7%) was due to higher D&A arising from spectrum rights amortization. The one-off Cukai Makmur dragged CNP by 12% to RM300m.

QoQ, revenue fell 2% on the back of lower device sales – after New Year Sales & new high-end phones smartphone launches in the preceding quarter. Service Revenue was flat dragged by drop (-3%) in Enterprise Business to RM388m. Subscriptions fell 2%, dragged by prepaid (-4%).

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 is starting to fade. Maxis will likely continue using acquisitions and acquihires to strengthen and scale its enterprise capabilities. With the decision to continue the 5G SWN under DNB, MAXIS is committed to realise the nation’s digital ambitions but remain cautious ahead in assessing equity participation in DNB.

Post results, as results were in line, we made no changes to our FY22E/FY23E earnings of RM1.26b/RM1.52b, respectively.

Maintain DCF-TP of RM4.00 (WACC: 7.4%; TG: 1.5%). Our TP of RM4.00 implies an EV/EBITDA of 10x, below 2SD of its 5-year mean, which we believe has priced in near-term uncertainties surrounding the 5G rollout. The correction in share price recently has resulted in attractive dividend yields ahead; thus, we upgrade the rating to  OUTPERFORM.

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 - 29 Apr 2022