News    Media reports have speculated that tycoon T Ananda Krishnan could be looking to sell his controlling stake in Maxis Berhad, although this is not the first time that such news have surfaced.

The rumour started a few months ago but seemed to have gained momentum after what was said to be a ‘house-cleaning’ exercise at the telco, where seven senior executives, including its chief executive, parted ways with the company just recently. 

Although close associate of Ananda was said to have rebuffed the idea, other insiders were reported to be saying that there was a figure of RM35b being thrown about as the price tag to purchase Ananda’s effective stake of 29% in Maxis Berhad.

Ananda owns 45% (via Usaha Tegas S/B) in the telco’s holding company, Maxis Communications Bhd, which in turn, owns 64.4% of listed Maxis. The other shareholders of Maxis Communications are Saudi Telecom Co (25%) and certain bumiputra shareholders (30%).  

One of the names being linked to a possible acquisition of Ananda’s stake in Maxis was said to be Puncak Semangat, a new telco player which had won a block of 4G LTE spectrum. 

Comments    The RM35b offered price tag, if materialises, imply a 7.5x multiple of the group’s FY14 consensus EBITDA of RM4.67b. The targeted EBITDA multiplier seems fair in our view, judging from the median valuation of the Global telecommunication sector’s M&A EBITDA multiplier over the past three years of 6.09x. By applying an average 25%-30% premium for the controlling stake, this would imply a fair targeted EBITDA multiplier range of 7.61x – 7.91x. 

While we believe the chances for the abovementioned rumours to materialise are low at this juncture due to the hefty firepower required, we do not discount that the newcomer, i.e. Puncak Semangat, may potentially explore the possibility. It would make sense for any newcomers, who have very dip pockets, to enter the capital expenditure-intensive telco industry via acquiring the existing operators.

Outlook    Maxis remains as a solid high-yield  play given its firm 40.0 sen DPS in the next 1-2 years. However, potential margin erosions are expected as a result of the aggressive rollout of its Home Fibre plan and handset subsidy.  

Forecast   Maintained our FY13-FY14 earnings forecasts. 

Rating   Maintain OUTPERFORM

Valuation    We are maintaining our Target Price at RM7.17 based on an unchanged targeted FY14 EV/forward EBITDA of 13.0x (+1.5x SD). 

Risks    Higher than expected margin pressure. 

Continued losses in market share to its peers.

Source: Kenanga