• Keep NEUTRAL, new MYR3.86 TP (from MYR4), 9% upside. 2Q24 results were in line with expectations. Key highlights: i) Robust enterprise growth, ii) steady EBITDA (guidance raised), and iii) controlled capex spending. We think Maxis stands a decent chance to front the second 5G network on good commercial execution. Our TP bakes in a 2% ESG premium.

• In line. 2Q24 core earnings of MYR356m (+0.8% QoQ, +8% YoY) brought 1H24 core earnings to MYR709m (+9.2% YoY), at 52% of our estimate (consensus: 51%). EBITDA was largely steady (1H: +5.9%) on continuing opex restraint while EBITDA margin held up (1H24: 47.4%). We see seasonally stronger opex in 2H. An in-line second interim DPS of MYR0.04 (payable on 5 Sep) puts 1H24 DPS at MYR0.08, at 88% of core earnings.

• Stronger enterprise, postpaid, and home fibre revenues; prepaid subs-add recovered QoQ. Service revenue was up 4.3% in 1H24 as stronger enterprise (+4.7%) and fibre revenue (+12%) offset weaker prepaid revenue (-1.1%). Specifically, enterprise fixed solutions sales (49% of enterprise revenue) grew 18.5% YoY (+6.4% QoQ). Management attributed this to stronger wholesale revenues (from the multi-operator core network (MOCN) pact inked with Telekom Malaysia last year), project deliveries, and connectivity offerings for data centres (DCs) to meet redundancy needs. Enterprise contribution to overall service revenue rose to 9% in 2Q24 vs 7.6% a year ago. Higher subs growth eclipsed the pressure on mobile ARPUs from tight competition which contributed to the relatively steady mobile revenue.

• 5G; other updates. Maxis’ plan to offer GPU-as-a -Service (GPUaaS) will be a first in Malaysia. This follows Singtel’s (ST SP, BUY, TP: SGD3.50) partnership with Bridge Alliance (of which Maxis is a member) to offer GPUaaS in South- East Asia. Management will gauge the appetite for the service and does not rule out delivering the service directly via edge DC facilities for improved latency. While comments by management on the 5G bid were expectedly light, we believe Maxis stands a good chance to front the second entity, being one of the earliest to modernise its network for 5G, coupled with the good track record of commercial execution. We believe the controlled capex intensity (1H24: 4.3%) is an attempt to keep its gun powder dry ahead of the 5G outcome while balancing mid-term dividend expectations.

• Forecast adjustments. Management has nudged EBITDA guidance upwards to marginal/low single-digit growth (flat previously). We adjust FY24-26F core earnings by +3%, -5.5%, and -1% after factoring in the latest 5G wholesale cost run-rate with some downward ARPU adjustments, reflecting the still-tight competition.

Source: RHB Research - 22 Aug 2024