TM International – A welcomed rejection

January 15, 2009 at 4:12 am 1 comment

· Failed bid for 3rd national mobile licence in Iran
TMI and consortium lost their bid for the 3rd national mobile licence in Iran. The licence instead went to a consortium led by Emirates Telecommunications Corp (Etisalat) and Tamin Telecom, the telecommunications investment arm of Iran’s social security and pensions department.
· Immediate reduced concerns on gearing levels
While the news may come as a setback to TMI’s expansion in Iran given the limitation of 35,000 subscribers in its current licence, we welcome the rejection. We are now less concerned about TMI gearing up to expand regionally, as its current gearing levels are already quite high at 1.5x. Had TMI been successful, earnings will likely take a dive from higher financing costs to finance additional capex, not to mention other risk factors such as execution and country risks.
Despite the immediate relief, we note that TMI has previously said that while it is shifting its emphasis in strategy from M&A to organic growth, the company remains open to any M&A growth opportunities. This remains a key underlying concern given its high gearing level. Global asset prices may have become cheap due to the credit crunch, but we are sceptical TMI’s balance sheet can support another sizeable M&A exercise.
· Focus should be on organic growth
TMI should instead be focused on managing its existing regional assets, notably in Sri Lanka (Dialog) and Bangladesh (Aktel) which are currently in the red before embarking on another M&A exercise. Dialog turned red in 3Q08 as profitability slid each consecutive quarter since 3Q07, while Aktel has been struggling with losses each quarter (except 1Q08) since 3Q07.
· Maintain BUY call, target price unchanged at RM5.95
We maintain our BUY call on TMI with an unchanged target price of RM5.95 based on sum-of-parts valuation. Risks include (1) lower than expected subscriber growth and ARPU due to a weakening economy, (2) margin compression due to mobile number portability, and (3) an
expensive M&A exercise.

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13 January 2009 Newz Bits 15 January 2009 Newz Bits

1 Comment Add your own

  • 1. » TM International - A welcomed rejection  |  January 15, 2009 at 4:21 am

    […] llanekbj wrote an interesting post today onHere’s a quick excerpt · Failed bid for 3rd national mobile licence in Iran TMI and consortium lost their bid for the 3rd national mobile licence in Iran. The licence instead went to a consortium led by Emirates Telecommunications Corp (Etisalat) and Tamin Telecom, the telecommunications investment arm of Iran’s social security and pensions department. · Immediate reduced concerns on gearing levels While the news may come as a setback to TMI’s expansion in Iran given the limitation of 35,000 subscribers in its current licence, we welcome the rejection. We are now less concerned about TMI gearing up to expand regionally, as its current gearing levels are already quite high at 1.5x. Had TMI been successful, earnings will likely take a dive from higher financing costs to finance additional capex, not to mention other risk factors such as execution and country risks. Despite the immediate relief, we note that TMI has previously said that while it is […] […]

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