an IPO to investors. Maxis Bhd will consist of just the domestic
cellular operation. Given the stable and mature state of the cellular
industry, the key investment proposition of Maxis Bhd will be a
dividend yield play with its 75% payout policy.
ISSUES TO CONSIDER
�� Maxis Communications Bhd (MCB) first became a public listed
company in July 2002 but through a voluntary general offer by its
major shareholder, turned private again in June 2007.
�� MCB is re-listing Maxis Bhd through an IPO, offering 2.25bn shares
with 92% of this for institutional investors with the balance for retail.
�� We have done a peer comparison in valuation to estimate a suitable
pricing range for Maxis Bhd’s IPO. In the exercise we use PER,
EV/EBITDA and dividend yield as the valuation matrix. The peers
are DiGi and Telekom as we believe both are the most suitable
comparisons for Maxis Bhd given that all three companies are
operating in the domestic domain.
�� We find that DiGi gives a tighter and more suitable range of RM3.90
to RM4.66 for Maxis Bhd while Telekom is larger at RM2.19 to
RM5.17.
ACTIONABLE IDEAS
�� The IPO offer price will be done through a book building exercise. A
suitable range is RM3.90 to RM5.17.
KEY CATALYSTS
�� Dividend payout policy increases from the 75% commitment.
KEY RISKS
�� Disruption in industry stability by new entrants or by incumbents
trying to win market share through aggressive price undercutting.
PRELIMINARY VALUATION
Given that Maxis Bhd will be a sole domestic operator, peer comparisons with DiGi.Com
Bhd and Telekom Malaysia Bhd are appropriate. From an operational perspective, DiGi
is a better match with Maxis Bhd given that both are cellular operators. There are two key
valuation multiple for peer comparison, namely PER and EV/EBITDA. The latter is
applicable given that all three companies do not have significant associates or JVs
contributions.
We believe Axiata is not as suitable for peer valuation comparison as it has significant
overseas influences. Its Indonesian operating company, XL, is a large contributor to
Axiata and distorts the profile of Axiata through additional country risk. It also has
operating exposures in Bangladesh, Sri Lanka, Thailand, Cambodia and Singapore.
PER
On PER, Telekom and DiGi trade between 15x and 17x 2009 earnings. In 1H2009, Maxis
Bhd registers RM1.14bn in PAT, which translates to an EPS of 15.2 sen. On an
annualized basis, this translates to a pricing range of RM4.56 to RM5.17 for Maxis Bhd.
EV/EBITDA
On EV/EBITDA, Telekom and DiGi provide a 5x to 8x range. Again annualizing Maxis
Bhd’s RM2.15bn 1H2009 EBITDA, this gives an equity value of RM2.19 to RM3.90, after
subtracting net debt of more than RM5bn.
DIVIDEND YIELD AS A GAUGE
Maxis Bhd has committed to a 75% dividend payout policy after listing. Keeping in mind
that the cellular industry is reaching maturity and it is not difficult to expect Maxis Bhd to
be a dividend yield play. The profile is very similar to DiGi where cash flows and earnings
are stable hence further strengthening the dividend appeal.
As such, we believe that looking at peer comparison from a dividend yield perspective is
also suitable. For instance, Telekom, which is seeing contraction in earnings but has
committed to a minimum dividend policy, continues to see a stable share price despite
deteriorating fundamentals.
Base on the same 75% dividend payout policy, DiGi gives 4.9% net yield in 2009.
Meanwhile, Telekom gives an 6.3% net yield base on its fixed RM700m payout. Applying
these to Maxis Bhd gives a price range of RM3.62 to RM4.66.
FINAL WORDS
In all cases, the implied pricing range for Maxis Bhd taking DiGi’s valuations give a tighter
range of RM3.90 to RM4.66 while Telekom’s range is larger at RM2.19 to RM5.17.
Ignoring the out lying RM2.19, a suitable range for the Maxis Bhd pricing could be
RM3.90 to RM5.17. Of course, these have to be cross checked with a DCF valuation,
which is the most suitable valuation methodology for cellular companies. This will be
done when our financial forecasts are up for Maxis Bhd.
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