Journey to Wealth
Telekom Malaysia - Facing a RM222mil lawsuit BUY
- Telekom Malaysia (TM) has been served with a suit amounting to RM222mil by One Visa Sdn Bhd for providing telecommunication services to the squatters on the latter's land in Pekan Ulu Temiang, Negri Sembilan.
- TM was alleged as a trespasser on five pieces of land by the supply of telecommunication services to the illegal occupiers on the land.
- It is understood that One Visa is seeking RM23mil as special damages being the total rental value of the land based on current market value rates calculated from March 22, 2011 and continuing until cessation of the telco services and the date of removal of TM's infrastructure from the land.
- Additionally, One Visa sought RM198mil as special damages due to loss of opportunity and/or loss of profit due to the occupation of the squatters which prevented it from developing the land.
- Nonetheless, in our opinion, the second claim, (which forms the bulk of the suit) does not exactly place TM as a direct cause to One Visa's inability to develop its land. Rather, the squatters are the ones directly responsible for the matter and it is difficult to think how TM can be implicated without the squatters being implicated as well (but where the squatters have very little financial ability to pay for claimed damages, logically).
- At this point, we see the first claim as likely, but the second claim does not look like a strong case, in our opinion. We understand that TM is holding a meeting today to discuss the issue. In the meantime, we think this news may be a slight negative to share price.
- In the worst case scenario that TM provides for the whole amount of RM222mil, we estimate FY13F earnings (currently RM878mil) to reduce by 24%. Correspondingly, our DCF value will be cut by 1% to RM6.65, if we factor in the impact of the lawsuit on cash flow projections. Maintain BUY on TM at unchanged fair value of RM6.70/share.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
