TMI and TM stock Reference Price post spin-off

Ahead of its listing on Apr 28th 2008 Telekom Malaysia International (TMI), the mobile-phone arm of Telekom Malaysia Berhad (KLSE: TM, stock-code 4863) after a spin-off plan, Bursa Malaysia has given its’ indicative stock price of RM7.85 a share which translates into RM26 billion in market value. The boring fixed-line TM meanwhile is only worth RM3.05 per share, according to Bursa. The combined reference prices of TM and TMI should equal to the last traded price of TM on April 22th 2008 (today, closing price was RM10.90 a share).

However Kenanga Research house has pegged a fair value of only RM7.17 for TMI justifying that despite cost improvements and higher productivity, the risk was equally high if one was to look at the regional expansion. Late last year (2007), TM has sweetened the demerger of its mobile and fixed-line business by proposing to return RM1.63 billion to its shareholders as special cash dividend – gross dividend of 65 sen a share. TM shareholders were entitled to receive one TMI share for every TM share they own.

The stock price of TM would be adjusted downwards (to RM3.05) on April 23rd 2008 to reflect the TMI shares distributed to shareholders of TM. Post demerger exercise, TMI would have a proforma net profit of RM1.52bil on revenue of RM9.99bil and the shareholder equity would stand at RM9.77bil. Debts, including amounts owed by the company to TM pursuant to the demerger, would come to RM9.12bil.

It would be interesting to see how both TM and TMI will sails from here onwards. At one corner TM needs to prove it still has muscles to be flexed, depending on how successful it could rollout the high-speed broadband services secured late last year. On the other corner, TMI needs to show its’ old brother, TM, and all the investors that it could take the place of Maxis Communications (privatized now) as far as the cellular phone business is concerned. The money is there on the street and it is TMI’s duty to convince previous Maxis shareholders that they are as good, if not better, than Maxis stock.

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