Tuesday, July 8, 2008

TM International (ref $ 5.85)

TM International market capitalization shed by almost RM 4 bln due to poor market sentiments and perceived overpaid IDEA Cellular acquisition. Most thinks paying a premium of 37% is too much. I will not go into very details as this stock is well covered by many analysts.

My comments:-

(i) Valuation wise, they paid more or less in line with recent deals done by Vodafone and Maxis. With the acquisition, this will allow TMI to be a serious player in Indian cellular phone market. Market share will increase from 1% to 11%. Some argued you should not follow the crowd even others could be overpaid. Well, everyone's entitles to their opinion, most voted with their feets by dumping their share already. It's a risk-reward to judge whether the company management is able to execute. With IDEA Cellular's ROCE of 17%, I think I will give it a shot.

(ii) Those attracted to invest in TM International need to have faith of their ability to grow subscriber base from a low penetration in mobile phone market of 1.9 billion people. The following table shows TMI assets in the emerging market, I have ommitted Celcom which is 100% owned by TMI with 30% plus market share.

(ii) OSK recently downgraded its share from $ 8.40 to $ 7.90 however iCapital upgraded as long term buy from buy below $ 8.40. Some other investment houses pegged as low as $ 7.20. Most of them cited global valuation compression.

(iv) Most will think IDEA selling for 30 plus times earning is again overvalued. To get PEG around 1.0, we will need at least 30% growth, this is a leap of faith -- you need to make this judgement yourself. You can visit http://www.ideacellular.com/IDEA.portal for more information.

(v) Competition-wise is something I'm a little worried as price war could dent everyone's profit. The cake however is big enough to accomodate everyone.

(vi) Net gearing will go up to 0.7 from 0.4.

(vii) Share price could be hammered further given current poor market sentiments. If Sansex or Indonesia Stock Exchange were to continue falling, this may depress share price further, sounds like my Parkson again?

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