TMI's Rights Issue yet to be finalized

TMI's Rights Issue ('RI') was announced on the same date as the Maybank's RI, but it lags behind in a few areas. Firstly, TMI has yet to announce how many RI shares is each existing shareholder entitled to subscribe. Secondly, the subcription price of the RI shares has not been finalized. Finally, the ex-date of the RI entitlement has also not been finalized. If the recovery in the share price yesterday is any indication, I believe that we will have an announcement on this matter next week. TMI may fix this RI as a 1-for-1 Rights Issue at RM1.00 each, following the illustration accompanying its announcement on February 27th.

From the chart below, we can see that TMI was sold down sharply until RM2.15 before the stock rebounded to test its very short-term downtrend line, yesterday. Earlier this morning, the share price continued to rise & broke above that downtrend line resistance at RM2.25. As at 10.45 am today, TMI is trading at RM2.35- a gain of 11 sen over yesterday's close of RMRM2.24.


Chart: TMI's 30-min chart as at 20/3/2009 (Source: Quickcharts)

How much further can this rally go? In my opinion, TMI is a very promising company, but with serious concern regarding its liquidity & solvency position. In addition, it suffered serious setback in two of its overseas markets, i.e. Indonesia & Sri Lanka recently (for more, go here). Can this setback be reversed?

With strong local institutional funds' support, I believe that TMI's share price can be maintained at RM2.30-50 level. If TMI closed at RM2.30 on the last day of trading prior to the ex-date, the Theoretical Ex-rights price would be about RM1.65 [derived by totaling up the cost of the RI shares (1,000 x RM1.00) plus closing price of original shares (1,000 x RM2.30), then dividing by 2,000]. As such, the discount of the RI shares to the Theoretical Ex-rights price would be about 39%.

On the other hand, if TMI closed at RM2.50 on the last day of trading prior to the ex-date, the Theoretical Ex-rights price would be about RM1.75 [derived by totaling up the cost of the RI shares (1,000 x RM1.00) plus closing price of original shares (1,000 x RM2.50), then dividing by 2,000]. As such, the discount of the RI shares to the Theoretical Ex-rights price would be about 43%.

At a discount of around 40%, I believe the TMI's RI should muster enough shareholders' support to sail through.