Maxis IPO could turn off investors

From the Business Times:

But at a fund manager briefing by CIMB in Kuala Lumpur last week, investors questioned why Maxis, stripped of its prized assets in India and Indonesia, deserved to be valued at the figure of two years ago. Malaysia is a fully saturated market in terms of SIM penetration.

“People have talked about 14 to 16 times (price to earnings ratio),” said Aberdeen’s Jalil. “I think at the lower end of the range it does look OK but if it’s in a late teen or something, it might put off certain people.”

Maxis, which earned RM1.14 billion in the first half of 2009, said it plans to pay out 75 per cent of its net profit as dividend. CIMB Research said Maxis had a dividend yield of between 5.3 per cent and 5.9 per cent in 2010, compared to the 4.6 per cent yield of the FTSE Bursa Malaysia KLCI.

But investors were not impressed.

“If I want to buy for yields, I may as well buy a bond, that way I am not subjected to the ups and downs in the market,” said the CIO of a fund management firm. -- Reuters

I concur as well with the article. The yield of 5.3 to 5.9 pc is not bad, but there are other dividend stocks that may be more attractive in less competitive markets. We have a mature telecom market where revenue growth will most likely amount to GDP growth. The only area which it could grow is in data services but that market is also highly competitive.

For instance, gaming and tobacco stocks are excellent yield stocks in less than competitive markets. Their games and cigarettes have built followings. Telecoms can't distinguish their products from one another easily and usually leads to high attrition as one provider offers better deals.

My take is that Maxis will be priced similar to Digi differentiated only by the customer mix they serve. Digi serves the lower end consumer and therefore might be cheaper with lower margins while Maxis might be a little pricier with higher margins.