• Keep NEUTRAL and DCF-derived MYR4.03 TP, 7% downside. Maxis’ results were in line with our and consensus’ estimates. Comments on 5G were expectedly faint, given that discussions are still ongoing. We see the risk- reward of the stock as largely balanced, with key risks being competition and regulatory setbacks. Our TP includes a 2% ESG premium, derived from our in-house methodology.

• In line. 1Q23 core earnings (+34% QoQ, +7.4% YoY) made up 24% and 23% of our and consensus full year forecasts. Deviations were largely on account of the higher marketing spend in the preceding (Dec) quarter and impact of the prosperity tax in 1Q22. A lower 4 sen DPS (98% payout) declared highlights uncertainties on the 5G capex front (contingent on the structure and cost of the dual network model). Management is guiding for FY23F EBITDA and capex to be similar to FY22, implying some degree of margin pressure. Our forecasts are retained for now.

• Service revenue was flat QoQ (+4% YoY) as the slight dip in consumer revenue offset incrementally higher enterprise sales. Postpaid and fibre revenue grew 10% and 18% YoY as the momentum on pre-to-post migration held up alongside the push on converged services. Prepaid revenue narrowed QoQ as both the subs base and ARPU contracted due to the clean- up of the non-revenue generating base and competition.

• Enterprise still in focus. The streamlining of the enterprise segment saw the low margin wholesale voice business axed from 4Q22. QoQ, enterprise revenue was flat as the growth in fixed and solutions revenue offset weaker connectivity revenue. Management said it is still committed in growing the enterprise business (currently c.17% of group service revenue) with a review undertaken on the portfolio of offerings.

• Keen to sign 5G access. Maxis is keen on inking the 5G wholesale agreement with Digital Nasional Berhad (DNB) at terms that are fair and not detrimental. Discussions on the modifications to access conditions (including pricing) are ongoing. The consent of shareholders may likely not be required if wholesale prices are more accommodative. On the dual 5G network, we gather discussions are still preliminary on the options presented to operators (Entity A/B) with 5G capex yet to be factored into the group’s guidance (FY23F: MYR1.1bn). We expect the issue to continue weighing on the group’s earnings and dividend outlook.

• ESG framework update. As there is greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 22 May 2023