Reiterate HOLD recommendation on Maxis with an unchanged DCF-derived fair value of RM3.90/share (WACC: 8.4% & terminal growth: 2%). This implies FY23F EV/EBITDA of 11x, below its 5-year average of 12x, which reflects limited earnings upside due to the inflationary environment impacting consumer affordability.
Maxis’ 1QFY23 net profit of RM320mil came in within expectations, accounting for 27%/23% of our FY23F earnings and consensus. Therefore, we are not making any changes to our FY23F-FY25F earnings. The group declared an interim dividend of 4 sen/share (payout ratio: 98%), on track to meet our full year forecast of 15 sen/share.
The 7% improvement in net profit was backed by healthy revenue level of RM2,526mil (+5% YoY) as well as lower effective tax rate (-6%-points) given the absence of 2022 prosperity tax.
The group’s service revenue improved by 6% YoY, as converged solutions helped to boost sales of all 3 consumer sub-segments i.e., postpaid (+10% YoY), prepaid (+1% YoY) and home connectivity (+11% YoY).
Separately, enterprise business revenue jumped 6% YoY, boosted by mobile sub-segment (+8% YoY). Excluding wholesale voice business, fixed & solutions sub-segment inched up 3% YoY.
On a QoQ basis, Maxis’ 1QFY23 net profit spiked up 34%, following the normalisation of its effective tax rate (-16%- points) as the company recognised higher tax charge for the prosperity tax in the previous quarter.
Operationally, the group’s consumer subscribers rose 249K (or +3%) YoY as the growth in postpaid (+208K) and home connectivity (+89K) segments offset the decline in prepaid (-32K). The QoQ drop in prepaid subscribers stems from the periodic clean-out of non-revenue SIM cards.
Maxis’ blended ARPU remains resilient at RM57.2/month (-RM0.6/month QoQ, +RM1.3/month YoY) with minimal changes in both prepaid and postpaid segments. Meanwhile, home connectivity ARPU declined 1% QoQ and 2% YoY as the group migrates wireless broadband customers to fibre.
On the 5G front, the company continues to express its commitment to be a part of the country’s 5G journey and expects to come out with 5G-related offerings soon. However, there is a lack of clarification presently on how the change from a single to dual network structure will affect the company’s cost structure and capex plan.
From a valuation perspective, the stock is currently trading at FY23F EV/EBITDA of 11.8x, slightly below its 5-year average of 12x while providing a decent 3.8% dividend yield. We view these valuations as fairly valued at this juncture as earnings growth will be capped by affordability pressures coupled with the lack of near-term rerating catalysts.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....