On Nov 19, Malaysia’s leading mobile operator returns to Bursa Malaysia. It will again be the country’s biggest ever initial public offering (IPO) at US$3.3 billion (RM11.2 billion), even without its overseas operations. Now that the IPO prices for Maxis Bhd has been fixed at RM4.75 (retail) and RM5 (institution), the next question is, where will its stock price find a balance upon debut? Will there be an 18% jump on its maiden trading day, just like how shares of “the old Maxis” performed upon debut in July 2002?
In retrospect, “the old Maxis”, which was sold to retail investors at RM4.36 apiece, made its debut at RM4.94 and traded between RM4.86 and RM5.30 on its maiden trading day before closing at RM5.15 on July 8, 2002. That year, Maxis’ shares touched a high of RM5.95 on Oct 31 before closing at RM5.40. It was only in July 2003 that the old Maxis broke the RM6 mark, soaring to RM9.50 in December 2004, about a month ahead of the announcement of its first overseas investment in Indonesia. The India investment was announced in December 2005, by which time its shares were hovering nearer the RM8 level. The shares breached the RM10 mark in late 2006, the year Maxis’ net profit jumped 26% y-o-y to RM2.1 billion, and soared past RM13 in May 2007 when the RM15.60 privatisation offer was announced.
The performance of the “new Maxis” will be known soon. For now, there are mixed signals on investors’ appetite for “the new Maxis”, which is largely relying on its dividend payout to keep investors interested while it works on milking more value out of its bread-and-butter mobile telephony services and unlock the potential of the largely untapped mobile broadband as well as smartphone user market.
Conservatives expect Maxis to see little price fluctuation, trading close to what the market thinks is the “appropriate” level of yields it should give.
At least two well-followed publications, including the Wall Street Journal Asia, recently questioned if Maxis has what it takes to justify and maintain a premium valuation versus regional peers like Singapore Telecommunications Ltd (SingTel).
Naysayers, including a columnist with UK’s best-selling financial magazine MoneyWeek, wrote last week in a blogpost that Maxis “isn’t grotesquely overpriced, but looks stretched” beside SingTel and PT Telekomunikasi Indonesia tbk (Telkom) — where the former has a portfolio of growth investments and the latter a heavyweight in a growth market.
“I would worry that Maxis might pay out too much [cash to shareholders] and under-invest in the future of its business,” the columnist wrote. He also reckons there may be “severe pressure to overinflate this IPO”, singling out the fact that three of Maxis’ four large institutional investors are local pension funds. Then there’s the “politics” — Prime Minister Datuk Seri Najib Razak had asked that the company refloats to boost the local equity market’s profile, the columnist wrote on Nov 11.
The Financial Times (UK) drew parallels between Maxis and the landmark debut of Dubai Ports World (DP World) on the Dubai Exchange late-2007 — both similar in terms of scale and visibility as well as political implications. (Dubai, too, had wanted the IPO to boost the local exchange’s profile.)
“Getting the right balance between the buyer, seller and broker is tricky even in a routine IPO. In a transaction with the scale and visibility of Maxis, the additional pressures can produce a valuation out of kilter with the market…
“Drawing parallels across sectors and countries is treacherous, but it is hard not to see the similarities to the DP World IPO of two years ago. Times were very different, but pressure on local investors to subscribe overcooked the order book and, as a consequence, DP World now trades at around 35% of its offering price, considerably underperforming the broader market,” an article in the Nov 3 edition of the FT stated.
In retrospect, DP World — then the No 4 global marine terminal operator by capacity and container units handled — was priced at the top of bookrunners’ indicative pricing range of US$1 to US$1.30 a share. The Emirates government-controlled operator had raised US$4.96 billion, at what was the largest ever IPO from the Middle East, by selling 23% of the company to repay US$3.5 billion worth of debt and raise funds for expansion.
To be fair, the region then was swimming in oil money before the onset of the financial crisis and the collapse of Lehman. In perspective, the massive fireworks display (10 times the the scale of the Beijing Olympics) on the opening night of the Atlantis Hotel on Dubai Palm Island happened one year after the IPO. Moreover, DP World’s underperformance today would have been due, at least in part, to the slowdown in global trade that had led to idle ships piling up at ports around the world this year.
For Maxis, what’s certain is that investors, who had been playing hardball, had secured for themselves a kickoff price that’s near the lower end of the RM4.80 to RM5.50 price range indicated to institutions by bookrunners.
If one were to measure Maxis’ upside potential using the RM5.30 to RM5.80 range that OSK Research valued the stock at, there is a chance that institutions may see between a 6% and 16% capital gain — not too shabby a deal. ECM Libra Research was even more bullish, having initiated coverage on Maxis last Wednesday with a RM6.10 fair value, being 18.1 times its FY2010 earnings estimate of 33.7 sen. KAF Research has a RM5.40 fair value on Maxis while Affin Investment Bank Research’s fair value of RM5.63 implies 17.3 times its FY2010 earnings estimate.
The final institutional price of RM5, while coming in a shade below what bookrunners had hoped to secure for billionaire Ananda Krishnan and his partner Saudi Telecom Co Ltd, was not entirely a surprise to local fund managers, especially those who had turned conservative of late as more people began to question if the window for the recent resurgence of IPOs in Asia is closing fast.
Last month, South Korea’s Posco Engineering & Construction, for instance, scrapped its planned US$924 million IPO after failing to get its intended pricing. A flurry of other new listings in Hong Kong in recent weeks saw share price sliding on debut, sparking fears that valuations had been overly stretched. Then again, not all IPOs are shunned; at least two more high-profile ones are slated for debut in Hong Kong later this month — the US$4 billion IPO of China Minsheng Banking Corp (Nov 26) and US$2.5 billion debut of Las Vegas Sands’ Macau assets.
Back home, there is also indication that institutions, which are tracking the benchmark index, may pick up more Maxis shares on the open market given that investors, including TA Investment Management Bhd, were allocated only a fraction of the number of shares they had asked for. TA’s chief investment officer Choo Swee Kee told The Edge that his fund’s allocation was only 5% of what it wanted.
Maxis will be included as one of the 30 constituents in the FTSE Bursa Malaysia KLCI from Friday (Nov 20), the second day of trading. While Maxis’ market capitalisation of RM35.63 billion (using RM4.75 reference price) makes it the sixth largest capitalised stock on Bursa (after Sime Darby, Maybank, CIMB, Public Bank and Tenaga Nasional), it will only be the 11th largest stock on the FBM KLCI, given that it had been accorded an investability rating of 30%. This means that Maxis’ adjusted market capitalisation is only RM10.69 billion, coming in just below AMMB Holdings Bhd’s RM11.17 billion, OSK Research said last Thursday.
The research house had earlier expected Maxis to be accorded a higher investability rating, similar to that enjoyed by companies like CIMB Group Holdings Bhd (100% despite Khazanah Nasional Bhd holding over 28%) and Sime Darby Bhd (75% despite PNB holding over 51%) .
“Nonetheless, we understand that there may be some changes in the way the investability weighting is determined come December (next index constituent review) and therefore, Maxis may be an early reflection of these changes… the potential adjustment to the calculation in the investability weighting could also see Maxis gain a heavier weightage in the upcoming months,” OSK wrote.
As it is, Maxis’ adjusted market capitalisation and 2.72% weighting on the FBM KLCI are behind that of Axiata Group Bhd’s RM19.57 billion adjusted market capitalisation (4.98% weighting) but ahead of Telekom Malaysia Bhd’s RM8.18 billion (2.08% weighting) and DiGi.Com Bhd’s RM6.78 billion (1.73% weighting), according to OSK’s estimates.
Whatever the case may be, what’s certain is the world is watching to see if Malaysia’s impending mega IPO — also the biggest ever in Southeast Asia — can live up to expectations and deliver the kind of returns that shareholders of the old Maxis enjoyed.
This article appeared in Corporate page of The Edge Malaysia, Issue 781, Nov 16-22, 2009.