• Maintain NEUTRAL with a DCF-derived TP of MYR3.93 from MYR3.98, 9% upside, and c.5% yield. Maxis results were mildly ahead of our forecast (in line with street estimates). While 2Q22 service revenue and EBITDA improved QoQ/YoY, core PAT fell 9% YoY due to Cukai Makmur and the accelerated spectrum amortisation. Management has reinstated its guidance (ex- 5G) which implies a stronger 2H22 EBITDA. We align our FY22-24F earnings accordingly. Our TP incorporates a 2% ESG premium based on our in-house methodology.

• 2Q22 core earnings widened 10.4% QoQ (-9% YoY) from stronger EBITDA (+9% QoQ) (lower cost of devices) and lower depreciation (3G network shutdown in 4Q21), partially offset by a higher tax expense. This brought 1HFY22 core earnings to MYR627m ( -9.7% YoY), at 51% of our forecast (consensus: 49%). A second interim DPS of 5 sen translates into a 75% FCF payout for 1HFY22, which appears to be ahead of our estimates.

• Mobile service revenue ticked up 2.9% QoQ (+3.1% YoY), ahead of DiGi.com (DIGI MK, NEUTRAL, TP: MYR3.65)’s +1.3% QoQ as Maxis saw stronger prepaid and postpaid growth with good ARPU uplifts. Prepaid revenue grew for the second quarter in a row (+3.3% QoQ), supported by the reopened borders, higher take-up of Hotlink Pantas, and new internet passes. Postpaid revenue gained 2.7% QoQ, aided by the recovery in roaming revenue (not yet back to pre-pandemic levels) and the more aggressive push on device bundles. Consumer revenue (which includes home fiber revenue) jumped 3.4% QoQ from higher take-up of fiber service (+6.1% QoQ) and converged services (postpaid unlimited bundle of mobile and fiber).

• Enterprise flat QoQ (+4.7% YTD) as steady mobile revenue was offset by weaker fixed and solutions revenue (-1% QoQ) given the challenging macro environment. The latter grew 8% YoY in 1HFY22, supported by contributions from its newly-acquired managed network services provider (MyKris)

• Guidance reinstated. After a two-year hiatus, Maxis has resumed its headline guidance. It expects service revenue to grow low- to mid-single digit while EBITDA is expected to show a flat to low single digit increase. Unlike its peer, Maxis sees little impact from higher energy cost with mitigation efforts at play (use of renewables) and its opex efficiency programme (XLR8). We lift FY22-24F core earnings by 1-4% to align with management’s guidance while bumping up our DPS estimate to 18-19 sen (17 sen previously). Our revised TP factors in the latest share base. The sharp sell-down on the stock YTD (-26%) has priced-in downside risks related to 5G. That said, we see sentiment being capped pending the finalisation of commercial wholesale agreement and the equity exercise with DNB. Key downside risks are competition, enterprise execution, and weaker than expected earnings.

Source: RHB Research - 29 Jul 2022