A 50% discount to its regional peer
Those who picked up TM International Bhd (TMI) shares when they dipped to RM3.12 on Dec 5, 2008, would have made a 48 sen, or 15%, profit on paper in just three weeks, going by the stock's RM3.60 close on Dec 26.
Given the uncertainties in the market, it is hard to say if there is more upside for the stock. Nonetheless, at least one issue that has given investors cause for concern has been cleared — TMI has lost out to UAE-based Etisalat in its bid for Iran's third nationwide mobile network licence. Investors were worried that additional spending in Iran would add to TMI's near-term debt burden. (An official announcement was pending at press time but Etisalat's CFO, Salem Ali Al Sharhan, in a statement to the Abu Dhabi Securities Exchange on Dec 23, confirmed that its consortium with Tamin Telecom was "the highest bidder".)
As one of investors' main fears is TMI's highly leveraged position, clarity is needed on how the company plans to achieve what it calls "an optimal capital structure" through "equity and equity-like instruments". TMI says it will finalise this structure by 1Q2009.
Sentiment should improve if the structure does not greatly dilute investor holdings. Khazanah Nasional Bhd, which owns 45% of TMI, has said it will back the latter's funding needs. Khazanah is expected to underwrite a hybrid debt/equity issuance.
Concerns over currency fluctuations and TMI's exposure in emerging markets like Indonesia, Bangladesh, Sri Lanka and Cambodia will be reduced if the company's key units continue to deliver decent numbers.
Expectations are highest for Celcom, which generates over RM1.3 billion in free cash flow a year and contributed 45% of group revenue and 50% of group ebitda (earnings before interest, tax, depreciation and amortisation) for the year to September 2008. Indonesia contributed about 37% to 38%.
At RM3.60, TMI is trading at only 4.7 times EV/ebitda (enterprise value over ebitda) for 2009 — less than half the 9.67 times EV/ebitda that its peer, Singapore Telecommunications Ltd (SingTel), is trading at. While SingTel's assets in India and Indonesia are more sought-after and the company is offering 4.9% yields to shareholders, does TMI deserve to trade at a 50% discount to its peer? Ultimately, the decision to buy TMI depends on whether one thinks the risks associated with the stock have been fully priced in.
