TMI had a very poor 4Q2008

TM has announced its results for 4Q2008 ended 31/12/2008 recently. For 4Q2008, TMI reported a net loss of RM515 million as compared to a net profit of RM244 million for 3Q2008 or RM520 million for 4Q2007. Its turnover has dropped by 26% q-o-q or 12% y-o-y to RM2.42 billion.


Table 1: TMI's last 8 quarterly results

Quarterly results analyzed.

The 26% q-o-q decline in turnover is quite worrying. It is mainly attributed to lower contribution from its Indonesian operation, where its turnover declined by 11.2% (in local currency) due to lower voice revenue driven by lower blended minutes of usage & lower blended average revenue per user. The decline is further exaggerated by a 14.9%-decline in the value of Indonesian Rupiah against our Ringgit from 30/9/2008 to 31/12/2008. As a result, the Indonesian operation made an operating loss of RM371 million for 4Q2008, as compared to a operating profit of RM142 million for 3Q2008 or RM154 million for 4Q2007.

Less stunning, but no less disappointing is the operating loss of RM108 million reported by the Sri Lankan operation- compared to the operating profit of RM14 million for 3Q2008 or RM49 million for 4Q2007.

The group's bottom-line for 4Q2008 was also impacted by forex losses of RM472.3 million (cf. forex losses of RM4.4 million in 3Q2008). [Note: Excluding the forex losses taken up by the operating units, the forex losses were RM253 million for 4Q2008 (cf. forex losses of RM18 million for 3Q2008)].


Table 2: TMI's quarterly results for 4Q2008, 3Q2008 & 4Q2007

FY2008 & FY2007 compared.

For FY2008, TMI's net profit attributable to shareholders declined by 74.5% from RM1.85 billion to RM471 million, despite a 13.5%-increase in turnover from RM10.0 billion to RM11.3 billion. During that period, operating income dropped by 21% due to poorer results from the Indonesian & Sri Lankan operation which overwhelmed the improved performance of the local unit, Celcom. In addition, the results was weighed down by 83%-increase in finance cost (to finance the Bridging Loan from TM and the acquisition of the stake in Idea, India); increased forex losses (of RM129 million); and negative contribution from jointly controlled entities of RM142 million (as compared to a positive contribution of RM176 million in FY2007).


Table 3: TMI's results for FY2008 & FY2007

Financial Position

TMI's financial position is precarious as at 31/12/2008. Its current ratio stood at 0.36 times while its gearing ratio (defined as Bank Borrowings divided by Shareholders' Funds) stood at 1.36 times. In an effort to address its poor financial position, TMI has proposed a Rights Issue in order to raise RM5.25 billion. The proceed of the rights Issue will only increase its current ratio to 0.57 times- still inadequate in my mind. Whether the gearing ratio will drop or not will depend on whether the proceed of the Rights Issue will be used to reduce its bank borrowings or the Bridging Loan from TM (which stood at RM4.1 billion as at 31/12/2008). If the latter is fully settled first, then the gearing ratio would remain fairly high at 1.27 times. How is TMI going to address the issue of short-term liquidity position?

Technical Outlook

TMI has been in a downtrend since its listing in April 2008. A good proxy for a downtrend line is the 40-day SMA. In addition, the -20% vertically displaced 40-day SMA has acted as the lower channel, support the price of the stock. In the chart below, I have plotted the 40-day SMA as well as 3 displaced 40-day SMA lines (-10%, -20% & -30%). I believe that the share price will find good support between the -20% & the -30% vertically displaced 40-day SMA (or between RM2.20 & RM2.50).


Chart: TMI's daily chart as at Mar 5, 2009 (source: Quickcharts)

Conclusion

Based on the poor results for 4Q2008 & concern about its financial positions, I think we would wait for further development before taking any position on this stock.

Note: The 11.2%-decline in turnover for the Indonesian operation (in local currency), coupled with the 14.9%-decline in the value of Indonesian Rupiah against our Ringgit from 30/9/2008 to 31/12/2008 does not explain 68.4%-drop in turnover for the Indonesian operation (in Ringgit term). I will seek clarification from TMI.