Friday, March 25, 2011

Transmile, PN17 -- not going Chapter 11?

Transmile has been suspended since March 03, '11. They have appealed not to be delisted. A few weeks have passed since then, and suddenly this news flashed on The Edge.

It said on Thursday, March 24, the proposed disposal was completed on Wednesday and the final disposal consideration of US$66.99 million was received in full.

To recap, Transmile’s disposal of the aircraft would enable it to reduce its debts by 39% to about RM320.1 million.

It had on Jan 10 signed a sale and purchase agreement with FedEx to sell four MD-11F aircraft for US$17 million (RM52.2 million) each to be satisfied entirely in cash. With the completion of the proposed disposal and usage of the proceeds of US$68 million (RM208.8 million), the net amount of outstanding debt obligations to be restructured was expected to be reduced by up to 39% to RM320.1 million.

Recently, it proposed a scheme of arrangement to ring fence its unit Transmile Air Services Sdn Bhd (TAS) and preserve it as a going concern.

Sounds like a good news and if the stock was still quoted, I'm quite sure it will cause the stock price to gap up. Many technicians will call that a bullish sign and ride on the trend!!!I am sure million of shares could have changed hands but not many would have analyzed the company and will be shocked to find out the value of the company is ZERO.

If one subscribes to efficient market theory, rising price means the market knows the company will survive this quake while declining means the company done something wrong -- perish. Rising price can persist for weeks, months or vice versa. This means nothing to me, it's merely a reflection of fickle minded of Mr. Market that know nothing and indecisive.

Will Transmile survive? How much should we pay for Transmile, if it ever be quoted again?

To answer those questions, the first question that I have is how many planes do they still own after disposing their aircrafts. What is the revenue that they can generate based on that capacity, since they have no money to buy more planes?

After going through the Balance Sheet, you can see that they separate fixed assets into Aircraft, property, plant and equipment(APPE) and assets held for sale. So, we know that Aircraft, property, plant and equipment is really the productive asset that can generate revenue.

In 2009, they have 132 mln APPE that generated

151 mln revenue

13 mln losses in gross profit

249 mln operating LOSSES!

In 2010, they have 95 mln APPE that generated

207 mln revenue

13 mln Gross Profit

143 mln operating LOSSES#####!!!!!!

Well, you may argue that it's not fair to just look at the final operating losses since they have a lot of one time charges and impairment. Wrong!!!

Actually, I don't need to waste time further as I cannot see how 2% Gross Profit is going keep this company going.

However, since I am not going talk about this stock forever, let me finish my analysis. The management is pretty honest actually by supplying this information. Based on Q4 '10 data, the company is generating 400 k + EBITDA or 2 mln annualized EBITDA.

If I add back the depreciation to EBITDA, it should give some idea of how much cash Transmile can generate. Unfortunately I cannot find the information.

They paid 25 mln interest in 2009. Assuming now that they have their debt cut by 1/3, they need to serve 17 mln interest per year. I doubt they can service their interest.

All the charts that I show you are from Q4 '10 earning report released on Feb 22 and I was wondering why people still pay 0.20 per share for dead Transmile(see chart). My foot efficient market theory #@####@!

It is too bad that KLSE does not allow people to short stocks or else this is the perfect stock to short the moment it gaps up.

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