MAXIS’s 9MFY22 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 ARPUs looking stable. It maintained its FY22 guidance for a mid-to-single-digit increase in service revenue with stable EBITDA margin. While keeping our FY22F numbers, we cut FY23F earnings by 13% to factor in 5G leasing charges. However, we raise our TP by 5% to RM4.07 as we upgrade EV/EBITDA multiple to 10x (from 9x) to reflect the 5G rollout risk that has now effectively been “crystalised”. Maintain OUTPERFORM.

In line. 9MFY22 CNP of RM944m met expectations, at 75% and 73% of our full-year forecast and full-year consensus estimates, respectively. A DPS of 5.0 sen was declared bringing cumulative interim DPS to 15.0 sen, above our full-year expectation of 16.0 sen.

Results highlight. YoY, 9MFY22 revenue improved 7% underpinned by better performance from service revenue (+4%). However, EBITDA was flat on account of higher device costs. Meanwhile, 9MFY22 core net profit declined 9% YoY on account of Cukai Makmur. QoQ,its revenue fell 1% dragged by lower device revenue. Similarly, EBITDA fell slightly (-1%) on account of reduction in recognition of government grants. However, core net profit fell 4% on account of Cukai Makmur.

YoY, its mobile subscribers grew by 2% to 10.4m. A 6% growth in its postpaid subscribers (driven by attractive bundling of mobile and home broadband), was partially offset by a 2% contraction in its prepaid subscribers (seasonal drop due to absence of festivities and migration to postpaid).

Its home internet revenue grew 20% YoY underpinned by a 15% growth in subscribers and a relatively stable ARPU of RM110 (underpinned by attractive bundling and promotions) while its B2B revenue reported a solid 4% growth (driven by the reopening of the economy).

The key takeaways from the results briefing are as follows:

1. The company reiterated its guidance for a low-to-mid-single-digit increase in service revenue with EBITDA likely to remain flat to a low-single-digit increase from FY21 level (42%), which is in line with our assumptions.

2. MAXIS expect the commercial launch of its 5G plans and the announcement of pricing by Jan 2023. In the meantime, it is offering the largest selection of 5G devices to the market.

3. MAXIS 5G Alliance, an initiative to create “a leading 5G ecosystem platform in Malaysia”, is gaining momentum with the signing on of seven new partners including Gamuda Land, Nokia, ZTE and Garuda Robotic, bringing the total to 23. We believe this will greatly boost its B2B revenue and fast track its 5G deployment as this alliance focuses on commercializing 5G and the internet of things.

4. The company does not expect rising inflation to stunt its growth. It will continue to introduce products appealing to low-income consumers (who are most vulnerable to high inflation) by offering affordable packages especially in the prepaid segment.

5. The company is confident about resilient demand for its telco services as it believes it is ahead of its competitors in terms of constructing new 4G towers, fiberisation of premises and upgrading of existing towers under Jendela Phase 1. This enhances its coverage, connectivity and efficiency,boosting consumer satisfaction.

Post results, we maintain our FY22F earnings. We cut FY23F earnings by 13% on account of 5G leasing charges from Feb 2023 as it shall deploy its 5G services by then.

Positive momentum to continue. We believe MAXIS’s positive earnings momentum will sustain into FY23 underpinned by: (i) its expanded 4G coverage, (ii) its 5G rollout, and (iii) the full-year impact of the reopening of the economy. Given the attractive bundling of home internet and mobile services, we are positive on its 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.

Maintain OUTPERFORM. While keeping our FY22F numbers, we cut our FY23F earnings by 13% to factor in 5G leasing charges. However, we raise our TP by 5% to RM4.07 (from RM3.90) as we upgrade EV/EBITDA multiple to 10x (from 9x) to reflect the 5G rollout risk that has now effectively been “crystalised”. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) Lower B2B spending on a sharp slowdown of the economy, (ii) a prolonged gestation period for 5G services, (iii) irrational competition between players.

Source: Kenanga Research - 7 Nov 2022