Results Note

24 July 2020

Maxis Bhd MARKET PERFORM ↔

Price : RM5.29
1HFY20 Within Expectations Target Price : RM4.90 ↔
By Clement Chua l clement.chua@kenanga.com.my

1HFY20 normalised earnings of RM698m (-12%) and 4.0 sen interim Share Price Performance
dividend declared are deemed within expectations. The group was 5.80

successful in preventing major dips in subscribers and ARPU numbers 5.70

5.60
during the MCO period with well-received offerings, one being its new 5.50

“Unlimited” Prepaid plan. Capex spending to maintain network

5.40
5.30

quality will likely remain undeterred with converged solutions being a 5.20
5.10
forefront approach. Maintain MP and DCF-driven TP of RM4.90 5.00

(WACC: 8.8%, TG: 1.5%). 4.90

4.80
4.70
1HFY20 deemed within. 1HFY20 normalised profit of RM698m is deemed to be 4.60

in line with our/consensus estimates, making up 46%/48% of respective

expectations. We anticipate a lumpier 2HFY20 as the recent period have been
impeded by the MCO enforcement. An interim dividend of 4.0 sen (YTD: 8.0 KLCI 1,606.42
sen) is also deemed to be within our expectations, against our 20.0 sen total YTD KLCI chg 1.1%
FY20E payment (in line with 3-year historical trends, ranging from 75-105% YTD stock price chg -0.6%
payout ratios).
Stock Information
YoY, 1HFY20 total revenue came in at RM4.49b (+1%) but service revenue
Shariah Compliant Yes
declined by 1% at RM3.84b as a fall in mobile revenue (-6%) was lifted by
Bloomberg Ticker MAXIS MK Equity
stronger enterprise and home fibre revenues. Segment-wise, Prepaid revenue (-
12%) continued to decline with line deactivations stirred by the MCO and Market Cap (RM m) 41,383.9
migration to Postpaid, which remains somewhat buoyed (-1%). As of 2QFY20, Shares Outstanding 7,823.0
Prepaid subscribers came in at 5.98m with an ARPU of RM40/mth (2QFY19: 52-week range (H) 5.72
6.42m users, ARPU: RM41/mth) while Postpaid subscribers registered at 3.69m 52-week range (L) 4.68
users with an ARPU of RM85/mth (2QFY19: 3.36m users, ARPU: RM91/mth). 3-mth avg daily vol: 2,350,072
Overall, normalised earnings fell by 12% to RM698m on greater depreciation Free Float 20%
from focused rollouts and more prudent impairments amidst Covid-19 Beta 0.7
pandemic.
Major Shareholders
QoQ, 2QFY20 service revenue was 2% lower as the MCO led higher Prepaid
Binariang GSM Sdn Bhd 62.3%
growth while Postpaid subscriber base and ARPU declined. While customer
Employees Provident Fund 11.6%
acquisition was softer, the launch of new “Unlimited” Prepaid plans attracted
great consumer interest. In line with the lower topline, 2QFY20 normalised Skim Amanah Saham 9.4%
profit closed at RM338m (-6%).
Summary Earnings Table
Hanging on steadily. Despite concerns of ARPU dilution, the group has stayed FYE Dec (RM m) 2019A 2020E 2021E
relatively unscathed thanks to its strong move to provide converged solutions Turnover 9,313 9,248 9,635
and maintaining its network quality. We see the move to provide lower entry
EBITDA 3,700 3,781 3,886
Postpaid plans and “Unlimited” Prepaid plans as addressing the possible changes
in consumer appetite for more value propositions. On this matter, management EBIT 2,435 2,428 2,499
believes erosion of shareholder’s value would not be a concern as this strategy PBT 2,036 2,025 2,081
could be a means to reach out to untapped markets. Meanwhile, it will continue Net Profit 1,519 1,518 1,561
to stay prudent and to focus on cash management and liquidity until a time Core Net Profit 1,500 1,518 1,561
when the implications of Covid-19 are more manageable. Though no new set of Consensus (NP) - 1,461 1,574
guidance has been disclosed, our estimates translate to a flat-to-low single-digit Earnings Revision - - -
decline in service revenue but a flat-to-low single-digit increase in EBITDA. EBITDA margin (%) 39.7 40.9 40.3
Core EPS (sen) 19.2 19.4 20.0
Post-results, we leave our FY20E/FY21E assumptions relatively unchanged. Core EPS growth (%) -15.1 1.2 2.8
Recall that we had previously adjusted our assumptions during 1QFY20 Results NDPS (sen) 20.0 18.0 19.0
Note by -7.2%/-6.5% in anticipation of economic headwinds.
BVPS (RM) 0.9 0.9 0.9
Maintain MARKET PERFORM and DCF-driven TP of RM4.90. We maintain our PER (x) 27.6 27.2 26.5
DCF assumptions (WACC: 8.8%, TG: 1.5%), closely within the stock’s 3-year PBV (x) 5.8 5.8 5.7
average of its 12.0x EV/Fwd. EBITDA. The stock’s sustainable projections could Net Gearing (x) 1.2 1.2 1.0
be well-priced in at current price levels. While this may keep dividend prospects Net Div. Yield (%) 3.8 3.4 3.6
intact, it remains only slightly above industry average of 3%.
Risks to our call include: (i) higher/lower-than-expected service revenue
growth, (ii) lower/higher-than-expected OPEX, and (iii) less/more aggressive
competition.

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Maxis Bhd Results Note
24 July 2020

Result Highlight

2Q 1Q QoQ 2Q YoY 6M 6M YoY

FYE Dec (RM m) FY20 FY20 Chg FY19 Chg FY20 FY19 Chg
Turnover 2,151 2,341 -8.1% 2,206 -2.5% 4,492 4,438 1.2%
Service Revenue 1,900 1,940 -2.1% 1,918 -0.9% 3,840 3,865 -0.6%
EBITDA 895 902 -0.8% 940 -4.8% 1,797 1,884 -4.6%
N. EBITDA 903 920 -1.8% 947 -4.6% 1,823 1,900 -4.1%
EBIT 540 567 -4.8% 631 -14.4% 1,107 1,268 -12.7%
PBT 451 478 -5.6% 531 -15.1% 929 1,069 -13.1%
Taxation -113 -118 -4.2% -142 -20.4% -231 -277 -16.6%
NP 343 358 -4.2% 397 -13.6% 701 806 -13.0%
Normalised NP 338 360 -6.1% 391 -13.6% 698 795 -12.2%
EPS (sen) 4.3 4.6 -6.1% 5.0 -13.6% 8.9 10.2 -12.5%
DPS (sen) 4.0 4.0 5.0 8.0 10.0

EBITDA margin* 47.1% 46.5% 49.0% 46.8% 48.7%

Normalised EBITDA margin* 47.5% 47.4% 49.4% 47.5% 49.2%
EBIT margin 25.1% 24.2% 28.6% 24.6% 28.6%
PBT margin 21.0% 20.4% 24.1% 20.7% 24.1%
Normalised NP margin 15.7% 15.4% 17.7% 15.5% 17.9%
Effective tax rate 25.1% 24.7% 26.7% 24.9% 25.9%

Note:
* Computed against service revenue

Source: Company, Kenanga Research

Segmental Breakdown

2Q 1Q QoQ 2Q YoY 6M 6M YoY

FYE Dec (RM m) FY20 FY20 Chg FY19 Chg FY20 FY19 Chg
Total Revenue 2,151 2,341 -8.1% 2,206 -2.5% 4,492 4,438 1.2%
Service Revenue 1,900 1,940 -2.1% 1,918 -0.9% 3,840 3,865 -0.6%
- Mobile Revenue 1,660 1,698 -2.2% 1,763 -5.8% 3,358 3,560 -5.7%
- Enterprise Fixed 127 129 -1.6% 69 84.1% 256 139 84.2%
- Home Fibre 113 113 0.0% 86 31.4% 226 166 36.1%

Non-Service Rev 251 401 -37.4% 288 -12.8% 652 573 13.8%
- Device 229 377 -39.3% 268 -14.6% 606 532 13.9%
- Network Income 22 24 -8.3% 20 10.0% 46 41 12.2%

Mobile Revenue Breakdown

- Prepaid Revenue 686 714 -3.9% 791 -13.3% 1,400 1,588 -11.8%
- Postpaid Revenue 974 984 -1.0% 972 0.2% 1,958 1,972 -0.7%

Key Operating Indicators Chg Chg

Prepaid ARPU (RM) 40 39 1 41 -1
Postpaid ARPU (RM) 85 86 -1 91 -6
Blended ARPU (RM) 57 56 1 58 -1
Prepaid Subs (k) 5,975 5,883 92 6,417 -442
Postpaid Subs (k) 3,686 3,704 -18 3,356 330
WBB Subs (k) 98 94 4 110 -12
Total Subs (k) 9,759 9,681 78 9,883 -124

Source: Company, Kenanga Research

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Maxis Bhd Results Note
24 July 2020

Peer Table Comparison

Core Earnings Net Div

Name Revenue Growth PER (x) - Core Earnings PBV (x) ROE (%)
Last Price Market Cap Shariah Current Growth Yld (%) Target Price
Rating
(RM) (RM'm) Compliant FYE 1-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. (RM)
2-Yr. Fwd. Hist. Hist. 1-Yr. Fwd.
Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd.

Stocks Under Coverage

AXIATA GROUP BHD 3.20 29,340.9 Y 12/2020 -8.7% 1.9% -32.3% 10.9% 30.5 45.1 40.7 1.3 1.3 2.9% 2.3% 3.55 MP
DIGI.COM BHD 4.26 33,121.5 Y 12/2020 -3.0% 1.5% -7.2% 1.8% 21.3 22.9 22.5 50.2 50.0 218.4% 4.3% 4.65 OP
MAXIS BHD 5.29 41,383.9 Y 12/2020 -0.7% 4.2% 1.2% 2.8% 27.6 27.2 26.5 5.8 5.8 21.3% 3.4% 4.90 MP
OCK GROUP BHD 0.500 479.3 N 12/2020 9.3% 6.9% 19.9% 5.0% 17.1 14.2 13.6 0.8 0.8 5.6% 0.0% 0.630 MP
TELEKOM MALAYSIA BHD 3.95 14,875.1 Y 12/2020 -8.2% -0.4% -10.2% 5.2% 14.9 16.6 15.8 2.3 2.1 13.2% 2.2% 4.20 MP
Simple Average -2.3% 2.8% -5.7% 5.2% 22.3 25.2 23.8 12.1 12.0 52.3% 2.4%

Consensus Estimates
TIME DOT COM BHD 10.88 6,557.9 Y 12/2020 12.1% 9.4% 5.1% 7.1% 20.9 19.9 18.6 2.4 2.2 12.0% 2.5% 11.95 BUY

Source: Kenanga Research

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Maxis Bhd Results Note
24 July 2020

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10%

MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10%

NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total return for
stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any
representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment
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addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability
whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities.
Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities
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