uReference~the star..

Wednesday September 23, 2009

Maxis listing a market boost

By B.K. SIDHU

Celco’s IPO will add RM30bil-RM40bil in capitalisation

PETALING JAYA: Maxis Bhd’s return to Bursa Malaysia bodes well for investors as there
are more choices in terms of pure celcos. More importantly the listing will add RM30bil-
RM40bil in market capitalisation to the local bourse.

It is a listing that the policy-makers want sooner than later to give the local bourse greater
breadth and depth.

The celco was initially listed in 2002 as Maxis Communications Bhd (MCB). Local
billionaire Ananda Krishnan took MCB private two years ago via his private holding
company, Usaha Tegas Sdn Bhd. He subsequently sold 25% of MCB to state-owned
Saudi Telecom. MCB had a market capitalisation of RM40bil then.

Prior to Maxis’ initial public offering (IPO), MCB, a wholly-owned subsidiary of Binariang
GSM Sdn Bhd, had implemented a restructuring exercise to consolidate its
telecommunications operations in Malaysia under Maxis, said the draft prospectus.

As part of its IPO, Maxis is offering 2.25 billion shares, of which 27.7% will be offered to
institutional investors and the remaining to retail investors. Under the new listing, Maxis is
not issuing any new shares, meaning that the proceeds will flow to the promoter.

But don’t expect the same Maxis of 2007 in this re-listing. The new Maxis will be without
the Indian and Indonesian operations, which were the high growth businesses. It will be a
listing purely of the local operations.
To some it may not appear as attractive given that growth in the local market is gradually
slowing down in a very competitive market place where the competition will emerge from
newer sources such as the MVNOs (mobile virtual network operators), WiMAX players,
high speed broadband (HSBB) and even the Internet carriers.

But Maybank Investment Bank senior analyst Khair Mirza is of the view that Maxis is a
big cap stock and, even if it is only the Malaysian operations, its market cap can still be in
the RM30bil-RM40bil range and this adds to the overall market cap of Bursa.

“Maxis is still a market leader in Malaysia. Its EBITDA (earnings before interest, taxation,
depreciation and amortisation) margins are still the best, thus it will offer the best
dividends. Few can argue over these points,’’ he said.

Maxis’ EBIDTA for the first half ended June 30 stood at RM1.14bil.

The Indian operations is via Aircel, which has a subscriber base of 19.6 million, and a
report said it was thought to have a valuation of between US$7bil and US$8bil.

In Malaysia, Maxis is the country’s dominant cellular player which, as at mid-June, had
11.4 million mobile (9.7 million in 2007) subscribers and controlled 40% share of the
Malaysian cellular market where there were 28.5 million subscribers.

Mobile penetration levels have reached the 100.8% level and regulators expect it to
reach 104.2% by year-end. In developed countries the penetration rates can be anything
from 120% to 140%, so there will be growth even though gradual.

In comparison, Celcom (M) Bhd, the country’s second largest celco by subscriber base,
had 9.69 million subscribers and a 34% market share as at end-June, while DiGi.Com
Bhd was third with 7.2 million subscribers and a market share of 25.3%.

The rest of the market is shared by U Mobile, Tune Talk and other MVNO players.

Maxis, in its draft prospectus that was posted on the Securities Commission’s website
since Sept 17, admitted that competition would only get keener in the telecoms space
and it was not confined to traditional celcos and telcos.
“Other competitors that have emerged are the Internet carriers such as Google Voice,
Yahoo Voice and Skype that allow users to make calls, send SMSes and offer other
advanced features such as the ability to route calls to multiple handsets and access to
Internet services,’’ Maxis said.

It added that the breed of MNVOs and even WiMAX players were rivals as they
competed on wireless broad band.

Telekom Malaysia Bhd (TM) is of course a competitor that Maxis has to contend with,
more so since TM will have its HSBB despite the fact that the network should be open to
all players.

Maxis’ EBITDA margins may be highest but an analyst prefers Axiata Bhd (Celcom’s
parent) as it not just offers exposure to Celcom but also has stakes in many celcos in the
region.

Axiata is a regional stock similar to Singapore Telecommunications (SingTel).

Another analyst favours TM, given its advantageous position with HSBB. DiGi, a long-
time favourite, has taken some heat due to the economic crisis but, with the economy
turning around, things are looking better and it (DiGi) will not give up easily without a
fight.

“Analysts and investors have their preferences. What matters is the fundamentals and
the dividend policy,’’ said a market player.

Maxis said in its draft prospectus that it planned to adopt a dividend policy with a payout
ratio of 75% of its consolidated profit after tax or every year starting with the financial
year ending Dec 31, 2010 (FY10).

Regionally, investors are spoilt for choices from Axiata, SingTel, China Mobile, Bharti
Airtel, Bakrie Telecom, and PCCW to name a few. Whether Maxis will become a regional
favourite remains to be seen but it should certainly excite the market place with its listing.

Revenues for Maxis are going up every year and it was RM8.4bil in FY08 versus
RM7.7bil in FY07. For the first half of FY09, Maxis reported revenue of RM4.2bil versus
RM4.07bil for the previous corresponding period.

But the average revenue per user (ARPU) seems to be on the decline. Blended ARPU
for FY07 was RM64 and, a year later, at RM58.60. For the first half of FY09 it was
RM54.20 versus first-half FY08’s RM59.10. Churn rates have also risen from 3.3% in the
first half FY08 to 4.2% in the same FY09 period.

Going forward, while its eyes are still on the mobile business, Maxis will also grow its
broadband business, invest selectively in its own fixed-line footprint and leverage on the
HSBB initiative. It intends to capitalise on its large customer base to push more content
and offer broadband services.
It will also form key partnerships for content aggregation and delivery.