Maxis Bhd (Maxis) posted an impressive 27.5% growth in 3QFY24 net profit to RM366m. For 9MFY24, net profit increased by 14.7% YoY to RM1,075m, mainly driven by a 4.4% growth in revenue while cost increased by a smaller pace of 2.0%. The results came in with both consensus and our expectations. We maintain our FY24-26F earnings forecasts. Being a leading integrated telco player, Maxis remains steadfast with its strategy to grow the mobile, fibre and enterprise business. Maxis' share price has fallen by about 10% in recent months, which we believe was due to the announcement on the second 5G network. While it appears that Maxis has failed to secure the second network, we think it could still partner with U Mobile and may perhaps, acquire part or the entire 28.3% stake available for sale. Trading at ~9% discount to our TP of RM3.90 and an attractive yield of 5%, we upgrade Maxis to a Trading Buy. A third interim dividend of 4.0sen per share was declared (9MFY24: 12.0sen).

• 3QFY24 revenue increased by 5.5% YoY to RM2,576m due to stronger contribution from postpaid, home-fibre and enterprise business. Mobile postpaid revenue rose 4.9% YoY due to an 8.7% growth in subscriber base on a lower ARPU of RM67 (-4.6% YoY). The growth in customer base was supported by the active promotion of pre-to-post migration as well as the offering of faster and upgraded internet quota to create more value for customers. Home-fibre segment saw its revenue growing by 10.8% YoY to RM225m with 8.8% increase in number of connections on a flat ARPU. Meanwhile, enterprise revenue expanded by 4.2% YoY.
• 3QFY24 net profit increased by 27.5% YoY, as revenue was growing at a faster pace than operating expenses. Operating cost rose marginally by 1.0% as the increase in direct and operation & maintenance cost was offset by lower staff cost. Note that Maxis incurred a one-off manpower rationalisation cost in 3QFY23. EBITDA margin improved to 40.7% from 38% in 3QFY23.
• What will happen with 5G rollout? Following the announcement of U Mobile being appointed by the Malaysian Communications and Multimedia Commission to launch the second 5G network, it remains unclear what role Maxis will be playing from hereon. We believe Maxis could still partner with U Mobile and perhaps, take up part or all of the 28.3% stake available for sale by its current major shareholder, Straits Mobile Investments (currently holding a 48.3% stake in U Mobile). U Mobile is expected to reduce its foreign shareholding to 20% to be aligned with its commitment to ensure greater Malaysian control of the telecommunication network, which is seen as a national strategic asset. Given the capital intensity of 5G deployment and U Mobile's high borrowing, we believe it needs a strong strategic partner to share out the cost of 5G investment.

Source: PublicInvest Research - 11 Nov 2024