Last Friday, telecommunications company Maxis released its results for the first quarter ended 31 March 2021, reporting a net profit of RM334mn. In a report released on the same day, Macquarie Equities Research (MQ Research) maintains its outperform rating on Maxis, its top pick within the mobile space, with a target price of RM5.76.

Enterprise Slow But Thesis Intact

• MQ Research maintains its Outperform recommendation on Maxis following the release of 1Q21 results. 1Q20 profit of RM334mn (+5% quarter-on-quarter (QoQ)) represents 23% of MQ Research’s and consensus estimates. Although enterprise revenues have been impacted by the movement restrictions in 1Q21, positive engagements and growing awareness MQ Research believes support its medium-term growth thesis for this segment. Positive momentum in mobile (+1% QoQ) and broadband (+20% year-on-year (YoY)) are also supportive. Maxis remains MQ Research’s top pick within the mobile space with a 14% core profit compounded annual growth rate (CAGR) (2020-23E) providing a rerating catalyst for its shares which currently trade at an adjusted 22E EV/EBITDA of 10.2x with a 4% dividend yield.

The Good, the Bad and the Way Forward

• The good. Home broadband revenue continues to expand at a healthy 6% QoQ / 20% YoY as subscriptions and average revenue per user (APRU) increased, which management attribute to industry’s trend of strong home broadband demand with high speed. Also, mobile service revenue increased sequentially (vs Digi with QoQ decline) as subscriber growth mitigated ARPU decline. Dividend per share (DPS) of 4 sen was announced, which is in line with MQ estimates of FY21e of 17 sen.
• The bad. Enterprise revenues were soft at RM136mn, -12% QoQ /+5% YoY due to movement restrictions delaying completion of project milestones which caused delay in revenue recognition.
• Going forward. Management expects convergence and enterprise to be key differentiators for Maxis going forward even under a scenario of a standardised 5G network and post Digi/Celcom merger. MQ Research notes that long term evolution (LTE) will continue to be the key source of revenues over the next 5 years.

Action and Recommendation

• Outperform maintained.

12-month Target Price Methodology

• MAXIS MK: RM5.76 based on a discounted cash flow (DCF) methodology

Source: Macquarie Research - 26 Apr 2021