UPDATE 2-Malaysia's Maxis up 8 pct on debut; gains to be capped

* Shares trade 8 pct above IPO price; relist after 2 years

* Steep valuations, flat outlook to cap share price gains

* $3.3 bln IPO is biggest in Southeast Asia

* Sixth-largest IPO globally so far this year

* 240 mln shares traded, half of market's total traded value

KUALA LUMPUR, Nov 19 - Shares in Malaysia's top mobile phone operator Maxis Bhd have little upside due to the sector's steep valuations and sluggish growth prospects after its $3.3 billion initial public offering made a strong market debut.

Maxis joins Chinese developer Longfor Properties Co in delivering impressive openings on Thursday as Asia dominates as the world's top region for companies tapping markets for funds this year..

By the midday break, Maxis was trading at 5.4 ringgit, above its IPO price of 5.00 ringgit ($1.49) in a flat market. The shares accounted for more than half of the market's total traded value.

"It reflects a certain degree of confidence in the company and some funds may be building positions because they didn't get sufficient allocations," said Pankaj Kumar, chief investment officer at local insurer Kurnia Insurans, which holds Maxis shares.

The institutional tranche of the IPO, accounting for more than 90 percent of the total, was sold at 5 ringgit a share, the lower end of an indicative range of 4.80-5.50 ringgit. The IPO raised $3.3 billion in Southeast Asia's biggest offering.

Maxis houses just the Malaysian business, leaving the fast-growing Indian and Indonesian operations with unlisted parent Maxis Communications Bhd, controlled by reclusive Malaysian billionaire Tatparanandam Ananda Krishnan.

Ananda, as he is known, is re-listing the stripped down company he took private two years ago, in Southeast Asia's biggest IPO.

Maxis has a 40 percent share of the saturated local mobile phone market, but faces tough competition from key rival Celcom.

"The Malaysian telecommunications industry is fairly matured with cellular penetration at 102 percent. Furthermore, sector valuations are at a premium to regional peers," CLSA analyst Clare Chin said in a noted dated Nov. 18.

Globally, Maxis' IPO is the sixth largest so far this year.

For a graphic on top IPOs this year, click http://link.reuters.com/bat42g

STRETCHED VALUATIONS

With a market capitalisation of $11 billion, Maxis is the fourth-biggest stock by market value, and will replace flag carrier Malaysia Airlines in the 30-stock FTSE Bursa Malaysia KLCI Index from Friday.

Malaysian telecom firms trade at a hefty premium to their regional peers. At 5.50 ringgit a share, the intraday high during Thursday's trade, Maxis was trading at 17 times 2010 earnings, said analysts.

Axiata, Maxis' top rival in Malaysia, is trading at a price-to-earnings ratio of 18.23 times and DiGi.com, the smallest mobile player in the country, at 16.48 times, according to Thomson Reuters I/B/E/S data.

Singapore Telecommunications is trading at 12.23 times and Indonesia's Telkom at 14.76 times.

Proceeds from the IPO will be used to expand its parent firm's Indian and Indonesian operations and to cut debt.

Some analysts said what made Maxis an even less attractive investment was its single-market model focussing solely on the domestic phone market.

Four cornerstone investors, who have promised not to sell their shares for six months, bought 28 percent of the offering. Fidelity and three domestic funds, including EPF, Malaysia's largest pension fund are the four investors.

In an interview with Reuters, Maxis CEO Sandip Das said the company offers greater earnings visibility as it strips off the capital-intensive Indian and Indonesian operations.

"It's a nice, clean property. "Maxis is a growth and yield story. The dividend story is going to be good," he said. Maxis has promised to pay out 75 percent of its earnings as dividends.

Ananda and his partners, Saudi Telecom and some Malaysian funds, sold 2.25 billion shares, or a third of Maxis, in the IPO. ($1=3.367 Malaysian Ringgit)