Monday, July 16, 2012

Maxis Malaysia and the power of cashflow

I have written about the power of cashflow for company like AEON where they basically used suppliers financing to finance some part of their business. Of course business like AEON will need to do the investment first (such as capital expenditure on buildings, land, equipment etc) then only they will stuff suppliers goods in their outlet. Collections are in cash, payment to suppliers can be up to 90 days.

This time, I am going to introduce another company which on its balance sheet, it can seemingly be seen as insolvent as it is on negative tangible asset value but yet the company is valued at RM48 billion valuation.

Just look at above - as at 31 Dec 2011, Maxis has locked in a intangible assets of RM11.06 billion while cash holding was just RM838 million. Total equity at that period was RM8.088 billion hence the company's total NTA was negative RM2.971 billion. To add further, its total borrowings was RM5.873 billion as shown below. Is its balance sheet under duress? Hell NO.

Borrowings for Maxis Malaysia


Just look at the amount of cashflow it is generating yearly. Operating cashflow of over RM4.3 billion yearly. From these cashflow, how much are needed to invest into the maintenance or ungrading of equipment. Lets look at another table...

Operating Cashflow of Maxis Malaysia
Based on below, it is reinvesting somewhere between RM1 - 1.5 billion for equipment upgrades or enhancement.

Hence, the net free cashflow Maxis Malaysia is generating is in excess of RM3 billion yearly. This is why they can be more than RM5.8billion in debt, negative NTA and yet the market is valuing Maxis at RM48 billion. Of course, the company is generating Net Profit of more than RM3billion as well, yearly.

You may want to ask, if the company is generating so much cashflow, how come its balance sheet is in so bad shape?

Remember, the delisting and listing back in Bursa. Well the delisting is for some magic financial trick where all the major absorb-dable debts are park at Maxis Malaysia, the vehicle to issue dividend as well and at the same time it can still get good decent valuation. The one that needs much more funds and perhaps may not be generating such cashflow will be held private and not seen in the eyes of public. (When you do not have a beautiful wife why bring them out that often?)

After the financial cleansing are done, they then list Maxis Malaysia. Usually Ananda's stable would be showing (and listing) the nice companies with strong cashflow so that they can issue (and proven to) dividends, while the non-paying dividends companies will usually be held private. This is because Malaysian investors are quite a sucker for dividends (me inclusive), hence the valuation.

A better example of a Malaysian telco with full-fledged regional operations where one country's operations will provide the cashflow while some other countries will absorb / use up the cash generated - look at Axiata. You will get a bigger and better picture from there as not all telcos are purely cash generating alone.


Sunny said...
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Sunny said...

I do not quite understand why he would keep the ugly wives in his secret chamber and "share" the beautiful wife to the public.

I always think that if I were him and imagine myself to be bad, I would do this:

Privatize the whole company, put it under my own investment holding company, cash out as much as possible from the telco to the holding company, and then borrow money from the bank to keep the telco's blood circulation just enough to pay off the interest, debt by installment, and a minimum acceptable dividend to the shareholder. After that, sell it to to the public at higher valuation. Pretty much like how to make profit out of a whore (knowledge from movies).

Don't you think so? Btw, I do not know how to do business actually. So please don't be too harsh to judge if my thought doesn't make sense.

Sunny said...

Maybe this is easier to understand:

Buy FFB below fair price and then squeeze them, after that sell the cake above fair price.

When it become fat again, privatize it second time and trim the fat, then sell 49% again. Repeat this many times.

Sunny said...

On error go to:

Before privatize 2nd time, pay less dividend to disappoint the public, "e-con-save" or "low price everyday", then privatize it.

End of program.