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Wednesday, September 23, 2009

Maxis to re-list only Malaysian ops

Market capitalisation possibly at RM42bn

A draft prospectus lodged with the Securities Commission on Sep 17 outlines that Maxis Communications Bhd (MCB) will re-list only its Malaysian operations, Maxis Bhd (Maxis) under an initial public offering (IPO) involving 2.25bn shares (30% of its issued and paid-up share capital), of which 2.075bn shares will be offered to institutional investors and the remaining 174.795m shares to the public.

The final IPO price however has not been fixed. Some media reports have been quoting sources indicating the IPO is estimated to raise US$2-2.5bn (RM7-9bn) which implies an IPO price of RM3.11-4.00. Others say the IPO shares may fetch as high as RM5-6 each. What is clear however is that no new shares will be issued, implying Maxis will not receive a single sen from the IPO exercise. Instead, the proceeds will go to the shareholders looking to trim their stakes through the IPO exercise. This is perhaps not too surprising as the Indian and Indonesian operations which need the funds most are kept private for now, suggesting separate listing exercises in the future.

However, MCB did manage to squeeze RM5bn from Maxis via a pre-listing restructuring exercise, which we believe will be used to fund the heavy capex of its foreign subsidiaries. In brief, the pre-listing exercise involves the incorporation of a new company, i.e. Maxis Bhd as the vehicle to house the Malaysian operations. Maxis Bhd will essentially acquire the Malaysian mobile operations from MCB, owing RM5bn to MCB in the process. To meet the RM5bn payable to MCB, Maxis has stated in the draft prospectus that it will raise long-term debt. Maxis will then have a net gearing of 0.58x. Interest charges on the amount payable to MCB are c.RM185m p.a. at an interest rate of c.3.7% (1.5% + 3-month KLIBOR).

From FY10, Maxis is targeting a fairly generous dividend payout policy of 75%. Assuming a very conservative assumption of zero earnings growth since annualised FY09 figures and taking into account interest charges for the RM5bn loan, Maxis’ will have DPS of 23 sen / share in FY10 based on EPS of 31 sen

Maxis’ IPO shares may trade in the range of around RM5.00 and RM6.20, assuming a PE multiple range of between 16x and 20x based on our FY10 EPS estimate. However, we believe Maxis will likely trade at around RM5.60 based on a PE multiple of 18x, taking into account its mobile market leadership thus deserving premium valuation over DiGi (16x), but a discount to TM’s fixed-line and broadband monopoly (20x). At a prospective RM5.60 per share, Maxis’ will generate minimum dividend yields of 4.2% in FY10. Such yields are lower than our estimates for DiGi and TM, but perhaps investors may overlook this to have a stake in a blue-chip company that may fetch a market capitalisation of RM42bn.

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