(Jan 11, RM3.35)
Recommend buy at RM3.42 with fair value RM3.60: Pos Malaysia’s 15%-owned Transmile Group Bhd finally announced a buyer for its four MD-11 aircraft on Jan 10. Transmile will be selling the planes – left idle since April 2008 – to Federal Express Corp for US$17 million (RM52.2 million) each, to be satisfied entirely in cash.
Total purchase consideration is US$68 million (about RM208.8 million) – against the planes’ Sept 30 carrying amount of RM242.1 million.
Proceeds from the sale will be employed to reduce Transmile’s heavy outstanding debt burden of RM528.9 million. We believe that the group of lenders led by the Employees Provident Fund (see report May 13, 2010), which served Transmile with a winding-up petition, will be paid first.
With the completion of the partial settlement, the group’s debt obligations are expected to be reduced by up to 39% to about RM320.1 million. We expect a fresh proposal of Transmile’s restructuring before its PN-17 delisting deadline on Feb 22, 2011.
Pos Malaysia impairs Transmile on a quarterly basis, and thus based on the Dec 31 price, 4QFY10 result is expected to include a non-core impairment loss of RM4 million. We reiterate that dividend will be made from profit before tax and exceptional items. We expect a minimum payout of 40%, yielding 4% in FY11F.
As at Monday’s closing prices, Transmile is worth only RM8.9 million to Pos Malaysia, or 1 sen per share. We have ceased to incorporate Transmile in our valuation since April 2010.
While prices have inched up nearer to our discounted cash flow valuation of RM3.60 per share, Price-earnings-wise Pos Malaysia still offers value at a 30% discount to its historical valuation of 14 times - expect a bidding war when the Prime Minister announces the final bidders for Khazanah Nasional Bhd’s 32% stake and a probable mandatory general offer. — AmResearch, Jan 11
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