• Keep NEUTRAL, new DCF TP of MYR4.03 (from MYR3.93), 0% upside with c.5% dividend yield. Maxis’ results were a slight miss on higher-than- expected tax expense. FY22 service revenue was up 4% YoY on higher mobile and home fibre growth, while enterprise revenue was flattish as fixed solutions revenue moderated further. Management’s flat-to-low single-digit growth guidance for 2023 comes on the back of the reshaping of its enterprise business. Our TP includes a 2% ESG premium. Key downside risks: Competition, lower-than-expected earnings and regulatory setbacks.

• A slight miss. FY22 results were a slight miss, owing to some staff one-off items and a higher-than-expected tax expense, with the prosperity tax crimping full-year core earnings by 9.7% (ex-prosperity tax: flat). Core earnings made up 95% of our forecast (consensus: 93%). FY22 service revenue and EBITDA improved 4% YoY and 2% YoY, meeting its earlier KPI/guidance. EBITDA growth lagged on higher contracting activities, which led to higher device costs (+18% QoQ) while staff costs rose 11% (+12% QoQ). An in-line 5 sen DPS puts full-year DPS at 20 sen (133% payout).

• Mobile service revenue (MSR) gaining momentum as roaming recovers alongside seasonality... Consumer postpaid revenue grew by a strong 11% YoY in 4Q22 (+2.4% QoQ/YTD: +7%) from the recovery in roaming revenue (c.7% of postpaid revenue) and stronger subs growth. Prepaid revenue ticked up by a marginal 1% QoQ, as lower subs (expiry of the Jaringan Prihatin programme) were offset by ARPU improvement from higher take-up of new plans. The bright spot continues to be the home fibre business, with revenue up 22% YoY in FY22.

• …but enterprise slips further. Enterprise revenue (16% of overall revenue) slipped 6% QoQ as the decline in fixed and solutions accelerated (-17% QoQ), with Maxis taking a conscious decision to hive off the low- margin wholesale voice business.

• Weaker service revenue guided for FY23F. Maxis’ flat-to-low single-digit growth in service revenue for 2023 implies slower growth ahead with the new CEO Goh Seow Eng (who joined last December), citing a need to reshape operations – specifically the integration of various enterprise businesses and the removal of low-margin services. This is not a surprise, as the operating environment has changed significantly for the group’s enterprise business, and necessitates a review of its converged (MAX) strategy. On access pricing (MSAP), management said it would look to renegotiate commercial agreements, with positive upside anticipated. Maxis is reserving capex guidance, pending the 5G policy outcome by the Government. There remains balance sheet headroom for opportunistic M&As, with dividend payouts likely sustained. Post-results call, we trim FY23-24F by 2-4% and introduce FY25F numbers. Our TP is lifted after rolling forward our base year.

Source: RHB Research - 24 Feb 2023