• Keep NEUTRAL and DCF-derived TP of MYR4, 8% upside. Maxis results were in line with seasonal elements in the March quarter. Enterprise and postpaid saw continued growth with the fixed-mobile bundling strategy and cost vigilance supporting EBITDA. Evolving 5G developments remain a key overhang despite the share price retreat. A 2% ESG premium is incorporated into our TP.

• Seasonal in line quarter. The typical seasonality was observed in 1Q24, with core earnings coming in at MYR353m (-2% QoQ, +10.3% YoY), at 26% of our and consensus forecasts. Core EBITDA (+7.4% YoY) and margin held up well (1Q24: 47.6%) with lower operation and maintenance opex as well as cost vigilance. An expected DPS of 4 sen (payable on 24 Jun) translates into a DPR of 89%.

• Service revenue growth ahead of guidance, up 4% YoY in 1Q24. It was flat QoQ as steady consumer revenue offset the weaker enterprise segment. Against the higher base of roaming revenue in 4Q23, both consumer and enterprise mobile revenues fell sequentially while home revenue was steady. Postpaid revenue was stable QoQ and up 6% YoY on robust subs growth (from pre-to-post migration), albeit with some degree of ARPU dilution (higher take-up of Hotlink postpaid plans relative to mainstream postpaid plans which convey higher ARPUs) and coming at the expense of prepaid. 5G monetisation remains a challenge, in our view, given the generous data quotas on 4G. Overall service revenue guidance of a “low single-digit” rise and flattish EBITDA (unchanged) for FY24F suggest some deceleration in growth in the subsequent quarters and incremental cost pressures. We make no change to our forecasts.

• Enterprise trending well; growth to sustain. Enterprise growth of 6% YoY in 1Q24 was supported by the 13.3% growth in fixed and solutions revenue which comprised the multi-operator core network (MOCN) deal signed with Telekom Malaysia in 2Q23. Management remains upbeat on the segment with a high single-digit growth anticipated in FY24F.

• No further clarity on 5G framework. Maxis said wholesale charges to Digital Nasional (DNB) were at sub-MYR40m in 1Q24. This suggests to us the prescribed capacity to 5G access seekers remains under the thresholds documented in the earlier access agreements inked. The outcome of the equity participation in DNB is still pending the completion of the due diligence exercise with management unable to shed more light on the matter beyond what has been reported in the press. The evolving 5G issue remains a key stock/sector overhang, clouding dividend prospects.

Source: RHB Research - 20 May 2024