Maxis to relist?

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We think so too. We think there is high likelihood of a relisting of Maxis. Firstly, RAM has placed Binariang GSM’s long- and short-term ratings on rating watch with a negative outlook. Binaring GSM is the company that acquired minority shareholders’ stake when Maxis was privatised in 2007. The rating watch is premised on RAM’s growing concerns over Aircel’s eroding profitability and cashflow due to intensifying competition, particularly when it its ramping up its capex programme. RAM Ratings reported that “…management has represented that efforts are underway to obtain equity support in the form of cash injection from shareholders that would be available to the Group on a staggered basis over a few years. RAM Ratings views the timely infusion of funds to be critical in preserving Binariang GSM’s debt protection measures.” Secondly, our industry sources also indicate that Maxis may be seeking a relisting, possibly as early as Sep 09. We also gather that there are no plans to inject Maxis into Astro as speculated by the market. Possible impact on listed telcos. We believe the entry of Maxis may be negative for DiGi given its poor trading liquidity as well as for Telekom Malaysia (TM) which has the smallest market capitalisation among the listed telcos. Investors may switch out of these stocks in favour of a bigger-cap telco which is very likely to have better trading liquidity. If it seeks a relisting, we believe Maxis will position itself as a high-dividend yielding stock given that it has gone ex-growth. Furthermore, its major shareholder will attempt to extract maximum dividends to help fund Aircel’s capex. We do not think Maxis will be listed without Aircel and Natrindo Telepon Selular as their large start-up losses will be a large drag on Maxis’s earnings and will dampen the appeal of the company. Among the listed telcos, Axiata should be the least affected by Maxis’s entry as it offers growth and regional exposure, which the rest of the Malaysian telcos do not, and has a large market cap and high trading liquidity. Our back-of-the-envelope estimates suggest that Maxis could have a market capitalisation of RM32bn-40bn based on: • 13-15x forward P/E, a discount to DiGi’s 15-16x. This high multiple may be achieved if its dividend yield is attractive. We estimate Maxis’s core net profit from Malaysia to be about RM2.5bn-2.7bn vs. RM2.0bn in FY06. • 7x forward EV/EBITDA, a discount to DiGi’s 7-7.8x. We estimate that Maxis generates an EBITDA of RM4.5bn-4.7bn. This will dwarf Axiata, Malaysia’s largest listed telco with a market cap of RM20bn, and will place Maxis among the top 4 or 5 stocks on Bursa Malaysia by market cap.

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Be cautious into 3Q. 1Q09 results of the six banking stocks we cover were generally in line, with combined net profit down 2.1% QoQ and 13.1% YoY. However, the weak 1Q09 GDP suggests growing stress in system loans over the coming months. We remain cautious on banks’ profits, especially from 3Q09. Underweight the sector. 1Q down a sharp 13.1% YoY. Other than AMMB’s positive surprise, results were generally in-line. The combined net profit of our banking universe was flattish QoQ but fell a sharp 13.1% YoY on lower treasury and FX income and higher loan loss provisions. Net interest income expanded, but the weak equity market continued to affect brokerage income, which contracted for the 5th to 6th consecutive quarter. Some signs of stress. Domestic loans continued growing at most banks. QoQ loan growth at the major banks (Maybank, CIMB Bank and Public Bank) outpaced system growth. Some loan segments, however, have begun showing stress. Domestic NPL saw upticks in the consumer (mortgage, autos) and working capital segments. Net NPL ratios continued to trend down due to the expanded loans base. Earnings to contract. There were no major revisions in our individual earnings forecasts except for AMMB (FY09: +16%, FY10: +7%). Our combined net profit forecast was upgraded by a marginal 0.1% for 2009 and 0.7% for 2010. We expect sector earnings to contract 9.9% in 2009, before recovering to 6.8% growth in 2010 (previously -10.1%, +6.1% respectively). This excludes further impairment in the value of long-term investments, merger costs and other one-offs. Asset quality concerns. 1Q09 GDP (-6.2% YoY, -7.7% QoQ) should be the weakest, suggesting that the worst may be over. However, we expect economic recovery to be slow, with real GDP to return to the 3Q08 high only in 4Q10. There is a 3-6 month interval from GDP trough to NPL peak. Hence, banks are set to report weaker profits on rising NPLs and higher credit charges from 3Q09. Mainly Sells. Against regional peers, the larger Malaysian banks are pricey. The current liquidity driven market has pushed valuations up but prospects for a strong economic recovery stay hazy. Sell into strength.

Bank NPLs yet to peak. Underweight

Maxis to relist?

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