KEY INVESTMENT HIGHLIGHTS

• 2Q20 normalised earnings of RM338m (-13.6%yoy), mainly impacted by higher provision for bad and doubtful debt

• Continuous contraction in quarterly earnings led to lower 1H20 normalised earnings of RM698m (-12.2%yoy)

• Uncertainties brought about by the Covid-19 pandemic led to heightened focus to strengthen the cash balance

• Dividend payment expected to trend lower in the near term as part of its cash preservation strategy

• Maintain SELL with an unchanged TP of RM4.45

2Q20 earnings pulled down by higher provision in doubtful debt. Maxis’ 2Q20 normalised earnings came in at RM338m, a decline of -13.6%yoy. This was mainly attributable to higher provision for bad and doubtful debt which was led by the Covid-19 pandemic. As a result, 2Q20 profit margin contracted to 15.7% (vs 2Q19: 17.7%). This in-turn has led to lower 1H20 profit of RM698m (-12.2%yoy) which was slightly below our expectation, accounting for 44.4% of full year FY20 earnings estimates.

Postpaid ARPU remains under pressure. The postpaid revenue for 2Q20 remains under the one billion mark at RM974m (+0.2%yoy). While the postpaid subscriber base has expanded by +9.7%yoy to 3.4m, the ARPU has reduced to RM85/mth (vs 2Q19: RM91/mth). The latter was caused by reduced international outbound roaming and dilution from entry point Hotlink Postpaid. Moving forward, we expect the dilution in ARPU to persist in anticipation of higher proportion of entry point Hotlink Postpaid subscriber.

Slow rebound in prepaid subscriber base. 2Q20 prepaid revenue contracted by -13.3%yoy to RM686m. While we acknowledge the subscriber base has expanded marginally by +1.6%yoy to six million users, it still fell behind 2Q19 subscriber base of 6.4m. Given the intense competition for the prepaid segment, we expect the subscriber base would remain lower as compared to the previous year.

Defending its network supremacy. 2Q20 capex declined by -3.0%yoy to RM259m. The group is phasing its capital spending subsequent to the higher capex seen in 1Q20 (+28.3%yoy). Nonetheless, 1H20 capex increased by +7.1%yoy to RM422m, as the group frontload its capex mainly to cater for the higher data usage during MCO. Coupled with its commitment to protect its network supremacy, FY20 is anticipated to come in at least similar that of FY19.

Impact on earnings. We are revising FY20 earnings estimates lower by -6.7% to RM1,466m to take into account the higher provision for bad and doubtful debt. Nonetheless, we expect the provision to normalised from FY21 onwards. Hence, we are keeping our FY21 and FY22 earnings estimates unchanged at this juncture

Source: MIDF Research - 24 Jul 2020