Maxis Berhad - Exciting growth venue from data centre
Thu, 22-Aug-2024 07:17 am
by Steven Chong • Apex Research

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MAXIS (6012)

Target Price (RM)

4.32

Recommendation

Buy

Summary

  • Maxis recorded CNP of RM365.0m (+9.9% yoy, +2.8% qoq) in 2QFY24, bringing 1HFY24 CNP to RM720.0m (+9.4% yoy), which was in-line with ours and consensus’ expectations, accounting for 54% and 51% of forecasts respectively.

  • We adjust our FY24-26 earnings by +7.1%/+6.6%/+6.1% to account for the revision in EBITDA guidance and growth opportunity in the data centre space.

  • Re-iterate our BUY recommendation with higher TP of RM4.32, based on DCF valuation (WACC of 6.5% with a long-term growth rate of 0.5%).

     

Results Review

  • Results review. 2QFY24 core net profit stood at RM365.0m (+9.9% yoy, +2.8% qoq). The strong year-over-year performance was driven by an increase in EBT margin (18.7% vs 18.3%) alongside improved top-line results. Revenue for the quarter recorded RM2.6bn (+4.7% yoy, -0.7% qoq), supported by growth in Maxis’s mobile services and enterprise segments.

  • Results within expectation. 1HFY24 core net profit of RM720.0m makes up to 54%/51% of both our and consensus forecasted net profit and was within expectations.

  • Operations Highlights. In 2Q24, postpaid segment retains its momentum with subscribers reaching 3.7m (+8.0% yoy, +2.0% qoq). On the other hand, ARPU declined to RM74.40 (-4.5% yoy, -0.9% qoq) stem from expansion of mobile plan offerings to attract the budget-conscious customer segment. Prepaid remained resilient with subscribers rising to 5.8m (+2.3% yoy, +0.8% qoq) overcoming the impact of pre-to-post migration. That said, prepaid ARPU trended lower to RM37.10 (-2.9% yoy, -0.1% qoq) as competition in the prepaid market remains fierce. Home Fibre also displayed robust growth in home connectivity to 777k (+10.1% yoy, +1.6% qoq) while ARPU remained surprisingly steady at RM110.20 (+1.8% yoy, -0.2% qoq) despite strong adoption of Maxis bundled deals.

  • Industry Highlights. Maxis is exploring opportunities to provide connectivity services to data centers in response to the growing demand for digital services and the expansion of data center facilities in Malaysia. We opined Maxis stand a strong chance of capturing a sizable market share, as data centers across the country seek to diversify their connectivity solutions providers. This, combined with focus on offering integrated solutions that includes connectivity, cloud services, and managed services for enterprises, positions the Group well.

  • Outlook. Management upheld their conservative outlook for service revenue growth at low single digits and maintained a capex target of under RM1.0bn. However, EBITDA growth guidance upgraded from flat to low single digits.

  • Valuation. We upgrade our FY24-26 earnings by +7.1%/+6.6%/+6.1% to account for the revision in EBITDA guidance and growth opportunity in the data centre space. Consequently, we re-iterate our BUY recommendation with a higher target price of RM4.32 based on DCF valuation (WACC of 6.5% with a long-term growth rate of 0.5%).

  • Risk. Price slashing by competitors. Changes in government regulations. Higher-than-expected 5G capex affecting cashflow and dividend. 

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