We value Maxis, Malaysia’s largest mobile operator, at an equity value of RM39.8bn- RM43.5bn, implying a fair value of RM5.30-RM5.80/share. The valuation translates into 14.8x-16.2x CY10 EPS, and is supported by our DCF target of RM5.80 (WACC: 9%, TG: 1.5%). Investors are advised to subscribe to the offer in view of Maxis’ strong fundamental execution, superior EBITDA margin and robust prospective dividends going forward. Institutional investors would have strategic exposure to an index-linked heavyweight with a sound liquidity profile. While deprived of the longer term growth story with the overseas assets hived off, Maxis is a core holding for exposure to Malaysia’s mobile telecoms.
Initiating coverage with a BUY and DCF target of RM5.80. The valuation of 14.8x-16.2x FY10 EPS represents a modest premium over regional mobile comparables of 11-15.2x albeit supported by Maxis’ strong fundamentals, execution track record and superior EBITDA margin. The valuation is also on par with that of its closest competitor, Digi (trading at the higher-end of regional comps of 16.1x FY10 EPS). Note that both Maxis and Digi share similar dividend attributes and are pure domestic mobile plays. On a DCF basis, the stock is valued at RM5.80/share based on 9% WACC and terminal growth of 1.5%.
