NOV 3 – The upcoming initial public offering of Malaysian mobile operator Maxis, which could raise as much as $3.43 billion, will be the largest new listing on the Kuala Lumpur exchange.
As such, it has political implications and calls to mind the landmark debut of DP World on the Dubai exchange in 2007.
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’s, the additional pressures can produce a valuation out of kilter with the market.
The indicative pricing is 4.80 ringgit to 5.50 ringgit ($1.41 to $1.61) a share, which is equivalent to around 9.5 times to 11 times 2009 enterprise value to earnings before interest, tax, depreciation and amortization, and between 8.5 times to 10 times EV/Ebitda for 2010. This is higher than regional peers, which average 5.9 times 2009 and 5.7 times 2010 EV/Ebitda. On a price/earnings basis, too, Maxis’s target valuation is high: 15 times 2010 price/earnings, compared with the peer group average of 13.3 times.
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.
In Malaysia, domestic pension funds reportedly are lining up to invest in Maxis, whose shares will be priced next week. Trading is to start Nov 18.
Multiple compression is the name of the game today for telecoms. Most mature telcos globally trade around five times to six times EV/Ebitda.
Singapore Telecom and PT Telekomunikasi Indonesia, which run both fixed-line and mobile networks (unlike mobile-only Maxis), are starting to change their business models, moving away from being pure network businesses toward providing content.
A look at the declining returns on assets over the past decade shows why these two operators have chosen this new tack. PT Telkom has said it plans to spend between $2 billion and $4 billion in the next two years to expand into information communications.
Such re-evaluations of business models due to declining returns of network assets suggest that Maxis will have its work cut out to justify its valuation. – Wall Street Journal
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