Switch Off The Lights When You Leave

Transmile Group Bhd went deeper into the red in the fourth quarter to December 31 2007 from losses incurred through bad debt expenses, aircraft depreciation and impairment charges. The air cargo operator's net loss widened to RM179.4 million from a loss of RM24.9 million in the previous corresponding period. Transmile said its net loss included a provision for doubtful debts of RM69.7 million and an additional depreciation of aircraft of RM18.4 million. Impairment loss in parts and components totalled RM51.6 million. Revenue, meanwhile, dropped 21 per cent to RM172.2 million from RM218.6 million in the year-ago quarter.

Transmile attributed the revenue decline to the cancellation of unprofitable routes and certain flights. For the full year, net loss widened to RM279.6 million, four times the RM63.8 million reported in 2006. Revenue declined 16 per cent to RM616.2 million from RM731.3 million a year ago.

Comment:
Does the realistically-revised business model stacks up? Let's look at the cost side. Let's leave the provisioning for doubtful debts aside as that is a legacy problem. It is likely that it wouldn't be profitable in 2008 even, earliest will be 2009 and even then the figure is not going to be great as they have been cutting routes in order to redo the business model.

Hence, the way to invest is to look at RNAV which is RM4.73 end-2007. A safety margin of of RM500m (RM279 in 2007) in losses will whack the figure down to RM1.284bn - RM500m = RM784m / 271.5m = RM2.88. That is provided the company turns profitable in 2009. The share price now at RM1.80 basically assumes a market cap of RM488m. That literally assumes an additional RM500m in losses in addition to 2007's RM279m losses. That is unlikely to happen. Hence buyers below RM2.00 would have some margin of comfort. Even so, on projected revenue of just RM150m x 4 = RM600m, and assuming a generous net margin of 10% = RM60m in net profit when business finally turns around or a net EPS of just 22 sen.

Hence even at RM2.00 on a good case scenario in 2009 we are looking at a PER of 9x 2009. It looks like an OK bet below RM2.00 but certainly there are much better options around. Even if things turn around, its unlikely to make a lot of money within the next 3-4 years. For starters, Evergreen Fibreboard is cheaper and has an excellent business model, highly profitable, margins in the 30% range, pays a great dividend yield of 6%... why bother in trying to bottom-fish among the hapless and helpless.