• Upgrade to a BUY (TP: RM3.95). Maxis’s top-line grew by +3.9% YoY in 1H24, supported by better contribution from service revenue (+4.3% YoY). Note that consumer business achieved revenue growth of 3.5% YoY, driven by Maxis's strategy to expand the price range of its postpaid plans resulted in a 6.2% increase in postpaid revenue, supported by 8.0% growth in postpaid subscriptions. The improvement in Maxis’s top-line in 1HFY24 was also supported by an 8.4% YoY increase in revenue contribution from its Enterprise segment, reaching RM222mn, driven by higher project deliveries for fixed and solutions services. Maxis recorded a net profit of RM709mn in 1HFY24, reflecting a 9.2% YoY increase. The group’s bottomline performance was in line with both our expectations and consensus estimates, accounting for 52% and 50% of the full-year forecast respectively. The group declared a fourth interim dividend of 4.0sen per ordinary share, bringing the cumulative 1HFY24 DPS to 8.0sen, consistent with 1HFY23. We upgrade our call to BUY from HOLD (due to recent price weakness), with an unchanged TP of RM3.95. Note that Maxis’s share price has declined by 14.3% YoY. Our valuation is based on a DCF model, applying a WACC of 8.0% and a long-term growth rate of 1.0%

• Key highlights. On a quarterly basis in 2QFY24, consumer postpaid revenue grew by 0.9% QoQ and 6.5% YoY, as the group catered to all market segments with its extensive range of postpaid plans and actively promoted its pre-to-post migration strategy. Correspondingly, postpaid subscribers increased by 2.0% QoQ and 8.0% YoY. However, prepaid revenue remained relatively flat, decreasing slightly by 0.2% QoQ and 0.5% YoY, in line with a slight decline in ARPU by 0.3% QoQ and 2.9% YoY due to the competitive prepaid market. Home connectivity revenue rose by 3.2% QoQ and 11.2% YoY, driven by strong growth in home connection customers, while blended ARPU increased by 1.8% to RM110.20.

• Earnings Revision. No change to our forecast.

• Outlook. Under the enterprise segment, Maxis has identified opportunities to provide fixed connectivity services for data centers, currently offering links to multiple data centers nationwide. The group is in ongoing negotiations to further expand these connections. Regarding 5G development, Maxis has indicated that the group is participating in the spectrum tender for the deployment of the second 5G network, with a final decision expected by 3Q24. We remain positive about Maxis's ability to maintain service revenue resilience, supported by its pre-to-post migration strategy and initiatives to encourage convergence between fixed and mobile services, alongside improvements in its enterprise segment. Additionally, the management has set FY24 KPIs, which include: (i) low single-digit revenue growth, (ii) EBITDA growth in the marginal to low single digits, and (iii) a capital expenditure of less than RM1bn.

Source: BIMB Securities Research - 22 Aug 2024