TMI may be due for a rebound

When the old TM was split up into today's TM (that houses fixed line and local assets) and TMI (mobile and regional assets), analysts were mostly in favor of TMI because of its exciting growth prospects. On quotation on April 28th, TMI traded at a high of RM8.20 (compared to a high of RM3.70 recorded by the restructured TM). TMI's share price has been trending lower ever since.

The decline in TMI's share price reflects the normal performance of growth stocks in a bear market. Lately, the drop has picked up speed as new concerns have arisen with regards to TMI's ability to refinance its maturing short-term debts of RM10.5 billion (which included a bridging loan of RM4.025 billion owing to TM and another bridging loan of about US$2 billion to finance the acquisition of IDEA in India) as well as the possibility of a cut in its dividend payout in order to conserve cash. TMI's management has since denied the report of a planned cut in its dividend (go here) & Khazanah has recently affirmed its support for the ongoing capital-raising and deleveraging of TMI (go here).

A look at TMI's financial performance shows that its turnover has been increasing steadily over the past 2 quarters, while its net profit has been declining due to higher finance costs; higher losses incurred by Spice in India; and, small forex losses (as compared to forex gain of RM42 million in QE31/3/2008).



TMI (traded at RM3.12 as at 11.00 am today) is now trading at a trailing PE of 8.7 times (based on annualized 2008 EPS of 36 sen) or at a Price to Book of 1.0 times (based on NTA per share of RM3.22 as at 30/9/2008). At these multiples, TMI is quite attractive.

Chartwise, TMI's share price has been trending lower in a downward channel. The share price had overshot the lower boundary of the channel in July, before rebounding. It had also overshot the upper boundary in September, before snapping back. Now, it appears to be pushing into the lower boundary at RM3.00. The stage could be set for another rebound.


Chart: TMI's daily chart as at Dec 4, 2008 (source: Quickcharts)

Based on attractive valuation, TMI could be a good stock for long-term investing. It is a stock that comes with some serious concern about its liquidity position, i.e. its ability to refinance its short-term borrowings. With the backing of Khazanah, I believe that TMI will be able to settle this issue amicably over the next 4-5 months.