1HFY22 results met expectations. Its subscribers, in both the prepaid and postpaid segments and B2B revenue remained robust while home connections continued to show positive momentum with blended ARPU looking stable. The company is upbeat on FY22, guiding for a mid-to-single digit increase in service revenue with stable EBITDA margin despite inflationary risks. We maintain our OUTPERFORM call and TP of RM3.90, with no adjustment based on ESG which is rated a 3-star as appraised by us.

In line. 1HFY22CNP of RM627m met expectations, at 50% and 49% of our full-year forecast and full-year consensus estimates respectively. A DPS of 5.0 sen declared brought interim DPS to 10.0 sen, on track to meet our full-year expectations of 16.0 sen.

Results highlight. 1HFY22 revenue improved 7% to RM4.8b underpinned by better performance from service revenue (+4.6%) to RM2.1b. EBITDA fell slightly (-1.6%) to RM1.9b on the back of 2ppt margin erosion to 41%. CNP declined 11% YoY to RM629m on account of the Cukai Makmur, resulting in an uptick of 7ppt to 33% in its effective tax rate.

In 1HFY22, its mobile subscribers grew marginally by 2% to 10.1m. An 8% growth in postpaid subscribers (driven by attractive bundling of mobile and home broadband), was partially offset by a 2% contraction in prepaid subscribers. In 2QFY22, there was a 2% QoQ growth in prepaid subscribers driven by the return of foreign workers as borders reopened.

In 1HFY22, home internet grew 18% YoY to 638k translating to revenue of RM409m or 20% growth YoY. ARPU remained stable at RM111. B2B revenue remained solid at 5% YoY translating to a RM774m in revenue. Attractive bundling and promotions contributed to the positive momentum in home internet while B2B momentum was driven by the reopening of the economy.

Key takeaways from the results briefing are as follows:

1. The company guided for a low-to-mid-single digit increase in service revenue (notwithstanding the commercial 5G launch) with EBITDA likely to remain flat to a low single-digit increase from FY21 level (42%), which is in line with our assumptions. MAXIS believes that it should be able to manage further cost pressures, if any, in 2H 2022.

2. MAXIS refrained from commenting with regards to Digital Nasional Bhd (DNB). We take it as negotiations (or possibly fine-tuning) with the government on pricing and annual outlay commitment are still on-going.

3. The company emphasized that its dividends pay-out are based on FCF/share. Its operating free cash flow (OFCF) remained robust at RM1.6b (+15% YoY) with the strongest interim performance in the last five years. With capex likely to be reduced in the coming years with the DNB partnership, Maxis is confident of maintaining robust dividend payouts as in previous years.

4. MAXIS are seeing traction coming from SMEs on digitalization investments. Investments on digitalization by SMEs are gaining grounds given availability of government grants.

Post results, we maintain our earnings forecasts.

Positive momentum to continue. We believe the positive momentum is expected to sustain into 2H 2022 on the continued reopening of the economy. Mobile subscription will be boosted by the return of foreign workers on reopening of borders. Given the attractive bundling of home internet and mobile services, we are positive on home internet gaining momentum further. The reopening of the economy is boosting its B2B revenue as both corporates and SMEs continue to upgrade their digitalization.

Source: Kenanga Research - 29 Jul 2022