AFFIN Hwang Capital Research has maintained its sell call on Maxis Bhd with an unchanged price target (TP) of RM4.55 due to the Covid-19 pandemic and the movement control order (MCO) that have affected its near-term profitability.
In a note on May 5, the research house said Maxis’s lower prepaid average revenue per user (ARPU), higher provision for doubtful debts as well as the ongoing weak economic conditions will affect its 2021-22E service revenues due to cautious consumer and business spending.
Maxis is now trading at 30x 2021E PER, one standard deviation above its nine-year historical average and at a premium to regional peers.
“At its current valuation, we believe the share price has largely priced in the positive long-term prospects of its growth strategy while underestimating the negative earnings impact from the Covid-19 pandemic and its economic spillover.
“Overall, the valuation looks pricey to us, considering Maxis’ weak 2020-21E earnings outlook and an unexciting FY20E dividend yield of 3.2%,” it said.
Notwithstanding growing service revenues from the enterprise and home fibre businesses, the mobile segment remains the dominant (but declining) earnings contributor.
“We forecast Maxis to report a weaker 2020 net profit of RM1.39 bil (-7.6% yoy, its lowest since its listing in 2009) due to lower mobile service revenue and higher operating costs.
“Consequently, we expect Maxis to cut its 2020 dividend to 17.7 sen. While we are generally positive on Maxis’ growth strategy, the unfavourable market conditions should affect its return on investment (ROI) during 2020-22,” said the research house.
Moving into 2021-22E, Affin Hwang anticipates Maxis’ core net profit to grow by 2.3% and 6.5% respectively on higher contributions from the enterprise segment (2021-22E) and stabilisation in the mobile segment (2022E).
Maxis share price opened 0.76% higher at RM5.32 before the midday break, giving it a market capitalisation of RM41.6 bil. – May 5, 2020
