Investors are bubbling with enthusiasm over the float of Malaysian mobile telecoms firm Maxis, the biggest Malaysian IPO ever and the biggest in Southeast Asia since 1992. The sale will raise up to RM12.4bn ($3.7bn) and value the company at RM40bn. But the background suggests this is a classic case of a hot IPO promising poor returns.
Maxis was taken private two years ago for around the same price. But it’s relisting without its overseas units, which are being retained by a parent company called Maxis Communications, which will hold a 70% stake in the listed Maxis. This will leave it as a pure play on the mature Malaysian market, where it’s the number one ahead of Axiata and DiGi.
That needn’t necessarily make it less attractive. The growth businesses swallow cash; they are also in markets that are seeing a price war (India) or have just had one and are set for consolidation (Indonesia). Conversely, the Malaysia business generates cash and is set to be a big dividend payer (4.5%-5%).
But that big dividend won’t just reward regular shareholders. It also allows the parent (which owns 70%, remember) to suck out cash to fund the overseas units, having already pocketed the IPO proceeds. So I would worry that Maxis might pay out too much and under-invest in the future of its business.
Then – as always – there’s the politics. Prime Minister Najib Razak pushed Maxis to relist because few firms have been floating in Kuala Lumpur. Three of the big investors will be domestic pension funds. In short, there’s severe pressure to overinflate this IPO.
And that brings us on to valuation. You don’t have to go far to find better. On a p/e of up to 16.5 times, Maxis is pricier than Singapore Telecommunications (Singapore: ST) (13.5x) and Telekomunikasi Indonesia (NYSE: TLK) (15.5x). SingTel is also a mature market, but has a portfolio of growth investments; Telkom is a heavyweight in a growth market. Maxis isn’t grotesquely overpriced, but it looks stretched beside either of those two.