Maxis IPO draft unveiled

Maxis has unveiled its draft IPO prospectus, confirming its plan to relist after months of speculation. We expect the group be relisted by end-4Q09, with a go-to-market valuation of RM37bn-RM40bn, pricing the stock at a fair 15-16x FY10 earnings and 8-9x EV/EBITDA. This compares with Digi’s 16.2x and Axiata’s 14.5x FY10 earnings and 6-8x EV/EBITDA respectively. Maxis’ key investment merits are its:

(i) target dividend yield of over 5% on the back of the domestic operation’s strong and steady cashflow,
(ii)dominant share of the domestic mobile market, and
(iii) superior margins.

Given its significantly higher profile, market capitalisation and trading liquidity, we believe investors are likely to switch from Digi (NEUTRAL, TP- RM22.00), being the other pure domestic telco play and to a certain extent, TM (NEUTRAL, TP-RM2.80). As Maxis will be relisted without its overseas operations, it is not a direct threat to AXIATA (BUY, TPRM3.68), which provides a more compelling longer-term proposition via its regional footprint in 10 countries. We maintain our NEUTRAL sector weighting as valuations are not attractive coupled with the intense competition in the mobile space.