Tuesday, November 10, 2009

MAXIS.KL : New Component in FBM30KLCI

Target price RM5.80
Final Price RM4.75
Institutional Price RM5.00

According to media reports, Maxis has fixed the final retail price of its IPO at RM4.75, being the lower of the initial IPO price of RM5.20 and 95% of the institutional price of RM5.00, following the closing of the institutional offering yesterday.

At the lower end. The final price is at the low end of the indicative range of RM4.80-RM5.50 and a reflection of the valuation appetite among institutions for the stock. Based on the final price, Maxis’ go-to-the market equity valuation of RM35.6bn will price its shares at 14x-15x FY09/FY10 earnings and 9x CY10 EV/EBITDA. Our fair value on the stock ranges from RM5.30-RM5.80 which implies CY10 EPS of 14.8x-16.2x, within the PER range of regional cmparables and Digi’s 16.1x FY10 EPS. To be included as a component stock come 20 November. Maxis will be automatically included as a component of the KLCI with effect from 20 November. It would be the largest telco constituent (estimated weightage of 6.1% based on our calculation), raising the overall telecoms sector weightage on the index to 14.5% from 8.8% previously. Showing the numbers. Maxis would have to demonstrate its ability to
(i) maintain a generous dividend payout (subject to the minimum 75% payout guidance) and
(ii) supplanting the slowing growth in the domestic mobile market via stronger data revenues.

We had highlighted in our IPO note that Maxis should have no issue meeting its dividend obligations given the superior FCF yields projected of 8-10% for FY10-FY11, comfortably over and above the projected net dividend yields of 4.8-6.1% for FY10/11 based on management’s guidance. There is scope for management to return more cash on the back of proactive capital management, including the gearing up of its balance sheet (net gearing of 0.6x post listing).

Initiating coverage with a BUY. We are initiating coverage on Maxis with a BUY recommendation with a fair value of RM5.80 based on DCF (WACC: 9%, TG: 1.5%). Key share price re-rating catalysts are (i) the stronger than expected earnings going forward (ii) and (ii) higher than expected dividend payouts.