Malaysia Strategy: Maxis IPO - Implications for the market

The Maxis IPO is on track: The re-listing of Maxis, Malaysia’s largest mobile communications service provider, on the local bourse will raise an estimated US$3.5B (based on today’s Edge newspaper report citing a share price range of M$5-M$6) for existing shareholders. In its draft prospectus posted on the Securities Commission’s website last Friday, the proposed IPO – the largest in the country in 15 years – will see 30% equity in Maxis being sold to institutional and domestic retail investors.

· Creating a buzz in more ways than one: The re-floatation exercise could see some institutional foreign fund flows back into the domestic market as investors refocus on Malaysia. Also, this high-profile listing could serve as a good case in point of PM Najib’s reform measures, especially on the recent policy changes on Bumiputera equity ownership for new listings on the equity market. Given PM Najib’s public supportive stance for this listing, we expect the government administration to maintain a relatively “conducive” environment for the market in the run-up to the IPO, which may include possible coincident positive news flow, such as: 1) positive vibes from the 2010 Budget in October; 2) announcements on the award of some key infrastructure projects to contractors, highlighting the pump priming agenda; and 3) encouraging sound-bites on a stronger 4Q09 economic outlook.

· On the downside, negative technical impact on the other large-cap stocks? Based on our back-of-the-envelope calculations, assuming M$5.00 per share (the low end of the range reported in the Edge newspaper), Maxis would have a market capitalization of approximately M$37B (US$10.9B), which would rank fourth on Bursa Malaysia. We calculate that Maxis’s weighting on the revised FBMKLCI would be around 7.5% based on an assumed 30% float, and would rank it 5th on the benchmark index. As investors ready cash to put into the potential M$11B IPO, we would expect some paring down of the other domestic large-cap stocks ahead of the listing unless we have significant foreign fund flows (see paragraph above). At greater risk, in our view, are the alternative dividend yield stocks (e.g. Digi, Axiata, Telekom, BAT, B Toto, Tanjong, PLUS, YTL Power, and MISC).