Firm may wait for a stronger recovery in capital market

PETALING JAYA: A need to raise funds for capital expenditure (capex), especially for operations in India, will drive Maxis Communications Bhd to relist on the local stock market, analysts said.

But the company may also want to wait for a stronger recovery in capital markets before relisting, they said.

ECM Libra Researchsaid if Maxis were to be relisted in the near term, the major driving factor would be the need for funding due to high capex requirements for its 74%-owned Indian subsidiary, Aircel.

Maxis had said in March it was planning to invest US$5bil in Aircel over the next three to five years to accelerate its cellular coverage expansion in India.

“With such huge capex, perhaps Maxis has found itself geared to the limit and needs to turn to capital markets for funds,” ECM Libra told clients in a note.

“Alternatively, Maxis could list Aircel instead which, according to Maxis then, was in the scheme of things but may not happen until markets recover.”

The research house said “if Maxis needs all the funds it can get, we believe listing Maxis is the preferred choice as investors would likely pay a premium if they can get a slice of both the dominant mobile operator in Malaysia while participating in the huge growth potential in India via Aircel.”

ECM Libra said this could be the right time to relist Maxis as investors’ risk aversion had subsided while stocks rallied and that “in the second half 2009, initial public offering and merger and acquisition activities are expected to surge on improved market sentiment.”

Nonetheless, it might be difficult for Maxis to obtain a big premium for its relisted shares as markets were still trading below their peaks, it said, noting that “to get a gauge of the potential re-listing price for Maxis, the best peer comparison is Axiata (Group Bhd).”

Both companies have stable domestic operations via Maxis and Celcom, and a presence in India via Aircel and Idea Cellular respectively.

As Maxis is private, there is no data on its most recent earnings per share (EPS).

Maxis’ last reported EPS was 84 sen/share in financial year ended December 2006 (FY06). Assuming that Maxis had achieved growth of 8% per annum, “this implies that Maxis’ FY09 EPS is RM1.06 per share,” according to ECM Libra.

And ascribing Axiata’s average FY09 price to earnings (PE) multiple of 16 to 19 times, Maxis could possibly be relisted at a market capitalisation of RM40bil to RM50bil, assuming a similar share base as before, the research house said.

Maxis’ market capitalisation was about RM40bil when it was taken private in 2007.

OSK Research said Maxis’ major shareholders would have to address some key issues and challenges before its relisting exercise.

“Most notable is the decision as to whether Maxis should be floated as a clean entity comprising solely its Malaysian operations,” said an analyst from the research house.

OSK Research told clients in a note that Maxis’ overseas assets in India and Indonesia, Aircel and 49%-owned PT Natrindo Seluler, were at various start-up and expansion phases, which would be a drag on the listed entity given their significant funding needs.

Besides US$5bil for Aircel’s expansion in India, Natrindo is likely to spend up to US$1bil over the next two years, it said.

OSK Research reckoned that Maxis’ shareholders could also delay the relisting pending a stronger recovery in the stock market to derive better valuations.

It noted that Maxis was taken private at the height of the previous bull run for RM39.9bil, or a price to earnings (PE) multiple of 16 times and an enterprise value/earnings before interest, tax, depreciation and amortisation of 9 times.

It estimated that Maxis could fetch RM31bil-RM40bil in market capitalisation upon relisting.

“This would pit it against the likes of Bumiputra-Commerce Holdings Bhd and Tenaga Nasional Bhd, which have market capitalisation of RM36.5bil and RM35.3bil respectively, making it one of the top five stocks on the FBM KLCI,” OSK said.

Among the listed telcos, Axiata’s market capitalisation stood at RM24.6bil followed by DiGi.com Bhd (RM17.2bil) and Telekom Malaysia Bhd (RM11.1bil).

When Maxis listed in 2002, its shares were sold at RM4.85 each to institutional investors and RM4.36 to retail investors, raising over RM3bil in proceeds.

It last traded at RM15.20.