• Maintain NEUTRAL, new DCF-based TP of MYR4.00 from MYR3.90, 5% upside with FY24F c.4% yield. Maxis’ FY23 results were in line with the robust postpaid, home fibre, and enterprise growth driving the FY23 core EBITDA uplift of 2.7%. Notwithstanding the decent operational showing, 5G policy uncertainties will continue to weigh on stock sentiment and cloud dividend prospects. A 2% ESG premium is baked into our TP.

• In line. 4Q23 core earnings (adjusted for staff rationalisation cost, accelerated depreciation and tax settlement) came in at MYR360m (+5% QoQ, +51% YoY). This brought full-year core earnings to MYR1.35bn, at 102% of our forecast (consensus: 104%). A fourth interim DPS of 4 sen (payable 11 Mar) puts the full- year payout at 16 sen (FY22: 20 sen), ie a 92% DPR (on normalised earnings). Adjusted for one-off staff rationalisation expenses in 3Q23, core EBITDA improved 7.4% QoQ against 2.8% QoQ service revenue growth on good cost restraint. 5G wholesale charges booked to date were minimal.

• Service revenue up 4.2% in FY23. Growth was broad-based and across all segments, with postpaid (+3% QoQ, +6% YTD), home fibre (+5% QoQ, +15% YTD) and enterprise (+10% QoQ, -15% YTD) leading the pack. Specifically, the consumer postpaid segment grew by a strong 8% YoY in FY23 (+2% QoQ) as subs growth more than offset ARPU dilution from the recalibration of packages to target a bigger market segment alongside the upselling of bundles. Overall FY23 service revenue growth (excluding wholesale voice which was discontinued in FY22) of 4.2% YoY comes ahead of CelcomDigi’s (CDB MK, NEUTRAL, TP: MYR4.35) +0.4% YoY.

• More enterprise wins expected. Enterprise growth (4Q23: +10% YoY/FY23: +6%) reflects the good monetisation of various collaborations with industry verticals, project wins and the multi-operator core network (MOCN) deal signed with Telekom Malaysia (TM). Specifically, fixed solutions (non-mobile) revenue grew 10% in FY23, making up c.8% of overall service revenue.

• Cautious guidance. Maxis’ FY24 guidance of a low single-digit increase in service revenue and flat EBITDA suggest some cost pressures (cushioned in part by the group’s 3-year cost rescaling programme). We lift FY24-25F core earnings by 7-12% to reflect the latest guidance, and after imputing more conservative 5G wholesale assumptions. FY26F numbers have been introduced. Given the uncertainties surrounding the dual 5G network and the group’s net debt/EBITDA of 2.3x, dividend prospects are likely to remain clouded, in our view. We note that management is also not ruling out further M&As to shore up its enterprise offerings, with cyber-security being eyed.

• Key downside risks include competition, weaker-than-expected earnings and policy setbacks. The opposite of these factors constitute upside risks.

Source: RHB Research - 23 Feb 2024