PETALING JAYA: Maxis Bhd sees growth accelerating for its enterprise fixed and solutions (F&S) unit as it expands its fibre network, but given the still small base, this is unlikely to significantly drive its core earnings for the financial years ending Dec 31, 2022 (FY22) and FY23, according to CGS-CIMB Research.

       “In the near term, there could be some boost from a recent one-year, RM110mil government contract to fiberise 27 schools and 27,000 nearby premises,” said the research unit.

       Maxis’ F&S revenue of RM203mil (10% of total service revenue) in the first quarter of 2022 (1Q22) was 3.3% lower quarter-on-quarter (q-o-q) due to a one-time boost in the fourth quarter of 2021, but higher 8% year-on-year (y-o-y).

       CGS-CIMB Research also noted that the communications service provider’s 1Q22 earnings before interest, taxes, depreciation and amortisation (Ebitda) was stable q-o-q (3.2% lower y-o-y) as lower margins offset higher service revenue.

       However, the group’s core earnings per share (EPS) rose 3.1% q-o-q (10.8% lower y-o-y) due to lower depreciation (3G network assets were fully depreciated at end-2021 in anticipation of full shutdown by mid- 2022) and net interest cost.

       Positively, 1Q22 dividend per share (DPS) was back to pre-pandemic levels of five sen (1Q21: 4 sen), which is above CGS-CIMB Research’s projected four sen.

       Also, Maxis’ 1Q22 service Ebitda margin was stable q-o-q at 46% as costs remain contained.

       Lower device (seasonal), operations and maintenance and marketing costs were offset by higher network and staff (bonus) costs, as well as normalisation of bad debt provisions.

       According to Maxis’ management, the latter should return to a normal run-rate of RM120mil in FY22 (FY21: RM17mil).

       CGS-CIMB Research has raised Maxis’ FY22 to FY24 estimated core EPS by 3.4% to 8.3% to factor in lower depreciation and raise FY22 estimated DPS to 20 sen (124% payout, previously 17 sen), given Maxis’s confidence in delivering a similar DPS for the rest of FY22.

       The research unit’s discounted cash flow (DCF)-based target price for Maxis was also raised by 3% to RM3.90 after the earnings upgrade and rolling over the DCF base year, partly offset by a higher risk-free rate of 4% (amid the recent rise in government bond yields).

       CGS-CIMB Research also upgraded Maxis’ stock to “hold” from “reduce”, as its share price (down 17% year-to-date) should be more firmly supported by a higher yield of 5.3% per annum in FY22 to FY24.

       Upside risks include mobile network operators taking equity stakes in Digital Nasional at fair valuations and are able to lower 5G rollout costs and wholesale fees, while the downside risks include the 5G single wholesale network plan proceeding as per current commercial offer.