What A Trading Day For TMI

Blogged this morning: Hello Bro, This Is TMI Calling

In loving memory, this is TMI's performance for today.

Some newsclip:

• TMI skids in early trade, down 28 sen
  Written by Joe Chin
  Wednesday, 25 March 2009 09:30
  
  KUALA LUMPUR: TM International’s share price fell sharply in early trade on March 25 when it resumed trade after a one-day suspension to announce its rights share price.
  
  At 9.22am, the KL Composite Index fell 2.32 points to 875.6. Turnover was 40.24 million shares valued at RM63.79 million.
  
  TMI was down 28 sen to RM2.33. There were 7.96 million shares done.
  
  Other decliners were Tenaga and Public Bank, down 10 sen each to RM6.10 and RM7.40.
  
  On March 24, TMI had fixed the issue price of its rights offer at RM1.12, with an entitlement ratio of 5-for-4.
  
  OSK Investment Research said the EPS dilution was significantly higher at 49%-52% of FY09/10 EPS (vs the indicative 34% dilution earlier).
  
  However, they said this was not unexpected given the delay in fixing the price and the fact that TMI’s shares have fallen 29% since the proposal was announced on Feb 26.
  
  “We downgrade our recommendation to Take Profit from Trading Buy following the 20% rally over the past three trading days. We expect the market to react negatively to the larger-than-expected dilution.
  
  “On an ex-rights basis, its FY09/10 PERs are not particularly attractive at 10.2-12.7 times given the challenging outlook for its overseas businesses,” it said.

• Path cleared for TMI to begin anew
  Written by Cindy Yeap
  Wednesday, 25 March 2009 10:11
  
  KUALA LUMPUR: TM International Bhd (TMI) shareholders approved all eight resolutions, including a RM5.25 billion rights issue and name change to Axiata Group, at a meeting that lasted over four hours yesterday, but it was not smooth sailing all the way.
  
  Approval for the renounceable five-for-four rights issue, fixed at RM1.12 apiece just ahead of the EGM yesterday, came by a show of hands after lengthy deliberations. But its proposed performance-based employees share option scheme (Esos) involving the issuance of up to 7% of its share capital met resistance from minorities.
  
  TMI chairman Tan Sri Azman Mokhtar was prompted to ask for vote via a poll, where one’s vote is based on respective shareholding, to see the three resolutions on the Esos through.
  
  The poll was called after he could not determine a conclusive outcome despite calling for a show of hands three times. This was again met with some protest by minorities, but the company’s legal adviser said the request for poll was allowed, citing Article 76 of TMI’s articles of association.
  
  To be fair, the Minority Shareholders Watchdog Group (MSWG) CEO Rita Benoy Bushon described the proposed Esos structure as “exemplary”, given that several performance thresholds for the company and the employees had to be met to determine eligibility. She called for greater transparency in its implementation.
  
  TMI Group CEO Datuk Seri Jamaludin Ibrahim told shareholders that it would be in a position to consider paying dividends to shareholders when the group’s cash flow “starts” turning positive “towards end-2010”.
  
  TMI Group chief financial officer Datuk Yusof Annuar Yaacob expects the whole TMI Group to be cash flow positive in 2011.
  
  But that was not enough to satisfy some minority shareholders, who wanted TMI to first show results and deliver shareholder returns, before considering the Esos.
  
  They voiced dissatisfaction about how TMI’s share price had tumbled from RM7.85 last April to the RM2 levels currently, wiping out RM20 billion in market capitalisation.
  
  Of those present, shareholders holding 7.7% of the company’s equity voted against the proposed Esos, while over 92% voted for it.
  
  Khazanah Nasional Bhd owns 44.51% of TMI. Employees Provident Fund board (EPF) has 15.76%, while Permodalan Nasional Bhd’s Amanah Raya Nominees Sdn Bhd holds 8.52%.
  
  Meanwhile, TMI said in a statement it had entered into underwriting agreements with CIMB Investment Bank, RHB Investment Bank and Maybank Investment Bank for the 55.49% or 2.6 billion of the rights shares, excluding Khazanah’s entitlement.
  
  Khazanah has undertaken to fully take up its portion and commit to subscribe to another 20% of the rights issue.
  
  EPF owns 57.55% of RHB Capital Bhd while PNB controls 52% of Maybank. Some RM85 million is estimated as the cost of the rights exercise, including the underwriting.
  
  TMI shareholders also approved that Khazanah be exempted from making a mandatory general offer (MGO) if one were to be triggered from the rights issue.
  
  The rights issue, expected to be completed around the first week of May, will see each TMI shareholder forking out an average of RM1.40 (RM1.12 per share multiplied by five rights shares then divided by 4 TMI shares) for every TMI share he owns.
  
  Any renounced rights entitlements are expected to be traded mid-April (T+13 days), Yusof said.
  
  The RM1.12 issue price represents a 50.9% discount to the five-day volume weighted average market price (VWAP up to March 23) of RM2.28 and 31.7% discount to the theoretical ex-rights price of RM1.64 (based on RM2.28 VWAP). TMI shares, suspended yesterday, closed at RM2.61 on Monday.
  
  Based on TMI’s last closing price of RM2.61, TMI’s theoretical ex-price is RM1.78.
  
  Kenanga Research maintained a buy call “on an ex-basis”. “Short-term weakness could be expected given the recent 20% uptick from the low as well as the larger-than-expected share issue”, Kenanga Research said in a note yesterday. TMI added 45 sen in three days prior to its suspension.
  
  “For traders, we would be looking at the rights-to-the-rights for opportunities. Based on the theoretical ex-rights price of RM1.78 versus the rights of RM1.12, the rights-to-the-rights shares should be priced around 66 sen maximum,” Kenanga said.
  
  TMI expects to see at least some RM240 million per annum in interest savings from the repayment of RM5.15 billion debts from the rights proceeds. Half or RM10.5 billion of TMI Group’s RM20 billion debts is at the holding level.
  
  RHB Research estimates TMI’s FY09-FY11 net debt/Ebitda (earnings before interest, taxation, depreciation and amortisation) will fall to between 2.2 times and 2.6 times from 3.1 times and 3.6 times pre-rights issue.
  
  Based on a theoretical ex-rights price of RM1.78, RHB estimated TMI’s FY09 and FY10 price-to-earnings ratio (PER) would rise to 11.2 times and 10.6 times, respectively, versus 8.4 times FY09 earnings per share (EPS) and 7.9 times FY10 EPS currently, as its share base balloons from 3.75 billion to 8.4 billion shares.
  
  RHB yesterday lowered its fair value for TMI to RM2.72 from RM3.45 after imputing a higher discount to reflect the dilution from the rights exercise, and retained its “market perform” call.
  
  Yusof also told shareholders that TMI intended to pay Telekom Malaysia Bhd (TM) “quickly over the next couple of weeks”, earlier than the April 25 deadline because there was an immediate interest savings, given that the RM4 billion due to TM carried a 6.5% interest rate per annum, higher than TMI’s average borrowing cost of 4.67% per annum.
  
  Yusof said it would invest between RM15 million and RM25 million in brand promotion for its new name Axiata. This is RM5 million to RM10 million more than the RM10 million to RM15 million it would have cost the company to continue spending to build the existing TMI brand.
  
  A new name that bore no resemblance to TM was chosen to eliminate any “confusion” in the branding between the demerged companies. Jamaludin said the new logo for TMI would be unveiled in “mid-April”.
  
  
  This article appeared in The Edge Financial Daily, March 25, 2009.

• OSK Research: Take profit on TMI
  Written by Joe Chin
  Wednesday, 25 March 2009 10:51
  
  KUALA LUMPUR: OSK Investment has downgraded TM International to Take Profit from Trading Buy after the company fixed the issue price of its rights offer at RM1.12 with an entitlement ratio of five for five.
  
  It said in a research note on March 25 the earnings per share (EPS) dilution was significantly higher at 49%-52% of FY09/10 EPS (versus the indicative 34% dilution earlier), which is not unexpected given the delay in fixing the price.
  
  The research house also said TMI’s share price had fallen 29% since the proposal was announced on Feb 26.
  
  “We downgrade our recommendation to Take Profit from Trading Buy following the 20% rally over the past three trading days. We expect the market to react negatively to the larger-than-expected dilution.
  
  “On an ex-rights basis, its FY09/10 PERs are not particularly attractive at 10.2-12.7 times given the challenging outlook for its overseas businesses,” it added.
  
  OSK Investment said based on the proposed five-for-four rights issue, the level of dilution would be significantly higher at 49%-52% for FY09/10 EPS (interest savings net of tax) versus the circa 35% it would have recorded had the rights price been fixed much earlier.
  
  TMI’s share price fell by up to 30% from the level when the rights issue was proposed on Feb 26. With the 4.69 billion rights shares to be issued, the issued share capital will balloon some 125% to 8.44bn.
  
  OSK Research said the net gearing would ease to 0.6 times from 1.3 times currently, with the RM5.15bn proceeds used to pare debts. “Our target price is maintained at RM2.50 (RM1.73 ex-rights basis),” it said.
  
  The research house also said there could be a potential impairment from its acquisition of a 15% stake in IDEA in 3Q 2008.
  
  “We had previously excluded IDEA in our SOP valuation on TMI. We believe that should the impairment charges be accounted for, TMI may have to write off some RM3.8 billion for its 15% stake given that IDEA’s share price has fallen by some 70% since the acquisition was announced at end-2Q08,” it said.