KUALA LUMPUR (April 27): Hong Leong Investment Bank (HLIB) has cut its target price (TP) on Maxis Bhd to RM5.12, from RM5.17 previously.

In a note, the research house — which has maintained its "hold" call on the telco — said the RM360 million core net profit achieved by Maxis for the first quarter ended March 31, 2020 (1QFY20) only accounted for 22% and 23% of HLIB’s and the consensus full-year forecasts respectively.

As a result of the lower earnings, earnings per share (EPS) forecasts for FY20 and FY21 have been cut by 24% and 12% respectively.

The decline was due to a higher-than-expected cost structure and depreciation and amortisation (D&A).

Meanwhile, one-off adjustments totalling foreign exchange loss and tax effect totalled RM2 million.

“Year-on-year, revenue inched up 5% to RM2.3 billion, stimulated by stronger device sales (+41%), while service revenue was rather flattish.

“The breakdown of service revenue revealed that mobile sustained its downtrend with -6%, and this was fully offset by growth in enterprise fixed (+84%) and home fibre (+41%).

“Nevertheless, the bottom line shrank by 11%, with higher D&A (+12%) and cost structure, especially in direct (+16%) and bad debt provision (+300%),” HLIB explained.

A four sen dividend was declared for the quarter, representing a payout ratio of 87%, lower than the five sen paid out a year ago as Maxis wanted to preserve its cash amid Covid-19 uncertainties.

Maxis’ post-paid subscriber base rose 1% quarter-on-quarter (q-o-q) to 3.4 million on the back of better take-up of Hotlink Postpaid plans.

However, average revenue per user (Arpu) declined by RM4 to RM86 due to the loss of inbound and outbound roaming as a result of Covid-19 and the movement control order, a 50% reduction in the mobile termination rate and dilution from the Hotlink Flex entry point plan.

Post-paid mobile Internet usage per subscriber was up by 8% q-o-q to 16.7GB a month.

Meanwhile, Maxis’ prepaid declined 6% q-o-q to 5.9 million, with Arpu down by RM3 to RM39.

However, mobile Internet usage per subscriber rose by 15% q-o-q to 16.9GB a month.

For the fibre segment, Maxis added 23,000 subscribers in 1QFY20 to reach a base of 392,000, with 384,000 being residential users and the balance being business users.

“We reiterate 'hold' with a lower DCF (discounted cash flow)-derived TP of RM5.12 (previously RM5.17), with an unchanged WACC (weighted average cost of capital) of 6% and TG of 0.5%. Maxis is still the largest telco in terms of revenue market share with quality of service as the differentiation to drive leadership in data adoption, but Covid-19 headwinds pose near-term uncertainty,” noted HLIB.

Maxis shares were up 0.56% or three sen at RM5.34 as at 10.29am today, giving it a market capitalisation of RM41.53 billion.