• NEUTRAL, with new DCF-based TP of MYR3.90 from MYR3.78, 3% downside with 5% FY23F yield. Maxis’ 9M23 numbers were in line, after backing out a cost rationalisation expense booked for the quarter. Key highlight: the 3-year cost rationalisation exercise with a 10% headcount reduction executed, half of which were from enterprise acquihires over the past three years. Our TP has factored in a 2% ESG premium.

• 1-off rationalisation expense. 3Q23 PAT fell 13% QoQ as EBITDA was crimped by a lumpy staff rationalisation cost that more than offset the lower tax expense and financing cost. Adjusting for this, YTD core earnings were broadly in line, at 74% of our forecast (consensus: 73%). An expected 4sen DPS was declared (9M23: 12sen), at a 92% payout (normalised earnings).

• Mobile revenue up 3% YoY in 9M23. Postpaid revenue growth accelerated to 2.3% YoY in 3Q23 (2Q23: +0.4% QoQ) as subs growth (+2.4% QoQ) offset ARPU decline (-1.3%), supported by good pre-to-post conversion and bundled offerings. Prepaid revenue reversed the two straight quarters of decline (+0.2% QoQ) post-launch of the new Hotlink plan targeted to the youth segment. Home fibre revenue rose 1% QoQ (8.5% of overall revenue) with incrementally higher ARPU of MYR109.5.

• Enterprise non-mobile revenue saw good uplift (+5% QoQ), supported by the on-boarding of the 4G radio access network (RAN) sharing deal with TM inked in June and commercial pacts with a large financial institution and an educational establishment on connectivity and managed voice solutions. Consequently, the fixed and solutions revenue grew 12% QoQ (+14% YoY) to a quarterly high. We expect RAN contribution to increase into FY24F with more sites activated nationwide.

• Cost-out exercise; minimal 5G wholesale cost still. Maxis has embarked on a 3-year operational right-sizing programme to reduce cost. While management did not disclose targets on potential savings, it indicated a one year payback from the 10% headcount reduction executed (cost booked in the quarter) for which enterprise acquihires made up half the number. On 5G wholesale charges by Digital Nasional (DNB), Maxis said the amount booked in its books is insignificant and expects the number to be significantly below MYR100m for the year. Maxis is in final negotiations on fibre access charges, with the new retail broadband prices already reflecting the wholesale cost proposed (no further downward re-pricing).

• Forecast tweaked. Maxis is maintaining its headline revenue and EBITDA guidance but lowered FY23F capex to “slightly less than MYR1bn” from MYR1bn, given the more targeted rollout of 4G and progressive migration to 5G. We raise FY23-25F core earnings by 1-3% to model in lower guided capex. Key downside/upside risks: Competition, weaker/stronger-thanexpected earnings and/or dividends and regulatory developments.

Source: RHB Securities Research - 14 Nov 2023