MAXIS’s FY22 results fell short of expectations. However, subscriber base growth (both in the prepaid and postpaid segments) was robust with stable ARPU supporting strong home broadband revenue. It guided for a conservative flat-to-low single-digit growth for its services but the 5G launch could be a game changer. We cut our FY23F earnings by 2%, trim our TP marginally to RM4.52 (from RM4.59) but maintain our OUTPERFORM call.

FY22 core net profit of RM1.18b fell short of our forecast by 6% and the consensus estimate by 8%. The reason for the variance against our forecast was non-operational, i.e. higher-than-expected tax charges. On the flipside, DPS declared of 20.0 sen exceeded our expectation of 16.0 sen.

Results’ highlights. YoY, FY22 revenue improved by 6% underpinned by service revenue (+6%). EBITDA grew 3% as guided, offset by higher device costs. On account of Cukai Makmur, tax rate was at 35% dragging core net profit by 12%. QoQ, revenue also rose by 6% underpinned by device revenue (+48% on a seasonal basis) as service revenue was flat. EBITDA fell 2% compounded by promotion and higher device costs. PBT ended lower by 13% on higher depreciation expenses which is normal in the fourth quarter.

YoY, its mobile subscriber base was flat. An 8% growth in its postpaid subscribers (driven by attractive bundling of mobile and home broadband), was partially offset by a 3% contraction in its prepaid subscribers (due to migration to postpaid). Postpaid ARPU remained stable but prepaid ARPU saw a slight uptick by RM2 to RM39.

YoY, its home internet revenue grew 17% underpinned by a 13% growth in subscribers and relatively stable ARPU of RM110. B2B revenue was flat on account of a higher base in FY21.

The key takeaways from its results’ briefing are as follows:

1. In the absence of the 5G rollout in the early part of FY23, the company guided for a flat-to-low single-digit revenue growth. Its conservative stance also stems from potential temporary revenue loss as it revamps its enterprise products and services (to focus more on the high-end market).

2. The company believes that its ARPU is competitive in both the postpaid and prepaid segments, and hence should be spared downside pressures and remains stable.

3. MAXIS expects the commercial launch of its 5G plans and announcement of pricing by 2Q 2023 once the added features are finalised by the government in late-March. It reiterated that its 5G products and services are ready for an immediate rollout.

4. MAXIS guided for muted impact from the new Mandatory Standard on Access (MSAP) standards recently announced by MCMC. MAXIS is renegotiating its current commercial agreement with TM before it can take advantage of the reduction in prices. It did not provide timeline as to when this will happen.

5. It guided for a capex in FY23 of c. RM1.7b or lower, with the key focus on fibre connectivity.

Post results, we tweaked down our earnings by 2% on account of lower leasing charges from April 2023 onwards and present our FY24 numbers.

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. Margins are likely to improve on account of higher-end products and services being offered.

Maintain OUTPERFORM. We cut our TP by 1% to RM4.52 (from RM4.59 based on unchanged FY23F EV/EBITDA multiple of 10x. 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 - 24 Feb 2023