TM- money can't buy you love

TM has just announced its results for 1Q2009 ended 31/3/2009. Its net profit dropped 83% q-o-q or 95% y-o-y to RM28 million. Turnover was up 5% to RM2.1 billion from RM2.0 billion in 1Q2008, but was lower than the preceding quarter's turnover of RM2.5 billion. To get a clearer picture of TM's performance, I have presented TM's net profit from its current operation as well as profit from its discontinued operation (which has been spun off as Axiata [formerly known as TMI]). The last 8 quarters' results are presented in a table form as well as in a line chart.


Table 1: TM's 8 quarterly results


Chart 1: TM's last 8-quarter performance (in line chart)

From the above line chart, we can see clearly that TM's turnover has been flattish, except for the sudden jump registered in QE31/12/2008. Its pre-tax profit & profit after tax have been declining since QE30/9/2007. The only uptick was in QE31/12/2008, but that was after hefty losses registered in the preceding quarter, QE30/9/2008.

The sharp jump in turnover for QE31/12/2008 was due to data, other telecommunication & non-telecommunication related services. There are no further details on what the last two items are. I guess it does not matter since turnover quickly dropped back in QE31/3/2009. The losses incurred in QE30/9/2008 was attributable to unrealized forex translation loss, realized forex translation loss on disposal of Sotelgui (about RM88.8 million) and prior years volume commitment charges (about RM68.0 million).

From Chart 2 below, we can see that TM's share price has a good run-up from a low of RM2.54 on Nov 13, 2008 to hit a high of RM4.00 on May 19, 2009. The sharp rise could have been driven by the proposed capital repayment of RM0.98 per share announced on Feb 24 this year.


Chart 2: TM's daily chart as at 21/5/2009 (Source: Tradesignum)

What would drive TM's earning in the future? The general perception is that TM's future will be rather unexciting. Its fixed line telephone business has little room for growth. The only new exciting & significant business is the national high-speed broadband costing RM11.3 billion, that will ride on its existing streamyx broadband service (here). Can this new business generate enough income to adequately reward TM's shareholders? TM has a capital base of 3.577 billion ordinary shares, currently valued by the market at RM3.80 apiece; thus giving TM a market capitalization of RM13.593 billion. Only time will tell.

Based on the above, I would reiterate that those who are currently holding onto TM shares should use the opportunity of any price uptick between now & May 26 to reduce your position. You would recall that TM's huge capital repayment of RM0.98 per share will go ex on May 27.