• Maintain NEUTRAL and DCF-based TP of MYR3.93, 4% upside. Maxis’ 3Q/9M22 results were in line with growth in postpaid, home connectivity and enterprise revenues offsetting prepaid softness while EBITDA was steady. With its share price down 22% YTD, downside risks related to 5G have been priced in, albeit, stock sentiment is likely to be capped pending the execution of the access agreement. Key risks: Competition, enterprise execution, and negative industry developments. Our TP bakes in a 2% ESG premium.

• 3Q22 core earnings fell 4.3% QoQ, as a slight weakness in EBITDA margin and higher financing cost eclipsed overall service revenue growth. 9M22 core earnings formed 74-75% of our and consensus forecasts, down 8% YoY, largely on account of Cukai Makmur, while EBITDA held up on good cost discipline from its opex efficiency programme (XLR8). A third 5 sen interim DPS puts YTD payout at 15 sen (9M21: 12 sen), or 125% of core earnings. Management has affirmed its FY22 revenue, EBITDA and capex guidance.

• Decent growth across mobile and fixed broadband (FBB). Mobile service revenue (MSR) ticked-up 1.1% QoQ in 3Q22 (+2.4% YTD) as Maxis’ focus on its Hotlink postpaid offering has mitigated the impact from the expiration of the Jaringan Prihatin (JP) which had a more pronounced impact on DiGi.Com (DIGI MK, NEUTRAL, TP: MYR3.72) with a 0.5% QoQ MSR decline recorded. Positively, enterprise mobile revenue surged 8% QoQ (9M22: +3.3% YoY), supported by the recovery in roaming usage (still not back to pre-pandemic levels) and higher take up of shared and Hotlink postpaid plans. Home fibre revenue grew 4% QoQ (YTD: +22%), making up 9.5% of service revenue with growth in FBB revenue offsetting the decline in wireless broadband (WBB) revenue as workers transition back to the office.

• Enterprise fixed solutions revenue still patchy. Fixed and solutions revenue fell for the third quarter in a row, attributed to one-time charges incurred and lumpy revenue recognition. With growth at 4.3% for 9M22, the segment’s contribution to service revenue was relatively unchanged at 9.5%.

• 5G access agreement put to a vote. Maxis is seeking shareholder approval for the execution of the 5G wholesale access agreement (AA) with the process expected to be completed by Jan 2023. Commercial 5G services will follow shortly after approvals are secured. While its peers had commercialised their 5G offerings following AAs inked on 31 Oct, the delay in Maxis’ 5G rollout is not a major concern, in our view, as there continues to be a dearth of compelling consumer use cases with monetisation challenges in the medium-term. Based on our previous estimates, FY23F- 24F core earnings are projected to decline by 12-13% based on the scenario of base wholesale contract charges of 800Gbps (volume commitment).

Source: RHB Research - 7 Nov 2022