You are on page 1of 4

TSM Global

Recommendation: BUY
Stock Code: 8842 Bloomberg: TSM MK Price: MYR3.60 12-Month Target Price: MYR4.30 Date: March 31, 2010

Board: Main Pr i ce 30 Day Movi ng Aver age Price (MYR)


4.00

Sector: Trading/Services 3.50

GICS: Consumer Discretionary/Auto Parts & Equipment


3.00

2.50

Market Value - Total: MYR192.5 mln 2.00

1.50
Summary: TSM Global (TSM) and its subsidiaries are 1.00
principally involved in the manufacture and supply of wire 0.50
harness for vehicles, automotive accessories, high tension
ignition cable sets and PVC wires and cables. In March Vol ume Vol ('000)

2010, it diversified into the die-casting and precision 800


600
machining of parts for the hard disk drive (HDD) industry. 400
200
Analyst: Alexander Chia, ACA 0
Mar 07 Jun 07 Aug 07 Oct 07 Dec 07 Feb 08 May 08 Jul 08 Sep 08 Nov 08 Feb 09 Apr 09 Jun 09 Aug 09 Nov 09 Jan 10 Mar 10

Results Review & Earnings Outlook Recommendation & Investment Risks

 TSM reported better-than-expected 4QFY10 (Jan) results, pushing  We maintain our Buy recommendation with a higher 12-month target
FY10 net profit to MYR24.6 mln that was ahead of our projection of price of MYR4.30 (from MYR3.80) on our earnings upgrade.
MYR22.6 mln. The deviation was mainly attributed to better selling
prices and compensation received from certain customers for the high  Our target price is derived after ascribing a target PER multiple of 9x
JPY exchange rate incurred by TSM earlier. against its FY11 earnings (both unchanged). Our target PER multiple
reflects the potential earnings contributions from KMSB and is within
 FY10 revenue was down 4% YoY at MYR258.2 mln, affected by lower the 6x-11x valuation range for autoparts companies under our
sales volume in 1HFY10. Nevertheless, despite the reduced turnover, coverage. The target price is inclusive of a projected dividend.
FY10 net profit rose 9.3% YoY to MYR24.6 mln, boosted by the higher
selling prices, improved productivity, effective cost reduction initiatives  We remain optimistic on TSM’s outlook, buoyed by the recovery in
as well as compensation received from customers. As a result, net consumer spending and rollout of new vehicle models. The Malaysia
profit margin improved to 9.5% in FY10 compared to 8.4% in FY09. Automotive Association (MAA) has forecasted a 2.4% YoY growth in
the total industry volume (TIV) to 550,000 vehicles in 2010. Meanwhile,
 TSM continues to maintain a solid balance sheet, with NTA/share and we are also positive management will be able to turn around KMSB’s
net cash/share rising to MYR2.65 and MYR1.26 at end-January 2010 loss-making operations, given its expertise and financial backing. At
from MYR2.31 and MYR1.09, respectively, in 4QFY09. prospective 7.7x FY11 PER, valuation is undemanding, in our opinion,
compared to the earnings growth on offer.
 We raise our FY11 net profit estimate by 3% to MYR25.2 mln after
lowering our cost assumptions. We also introduce our FY12 net profit  Risks to our recommendation and target price include slower-than-
forecast of MYR26.9 mln. Note that we have yet to factor in any expected recovery in consumer spending and stronger-than-expected
contribution from its recent proposed acquisition of 85.47%-stake in appreciation of JPY and USD against the MYR.
Kensheisha (KMSB), pending completion of the exercise, which is
expected in 2HFY11.

Key Stock Statistics Per Share Data


FY Jan. 2010 2011E FY Jan. 2008 2009 2010 2011E
Reported EPS (sen) 46.0 47.1 Book Value (MYR) 1.92 2.31 2.65 3.06
PER (x) 7.8 7.7 Cash Flow (sen) 63.7 64.1 65.4 80.4
Dividend/Share (sen) 5.0 5.0 Reported Earnings (sen) 37.2 42.2 46.0 47.1
NTA/Share (MYR) 2.65 3.06 Dividend (sen) 5.0 5.0 5.0 5.0
Book Value/Share (MYR) 2.65 3.06 Payout Ratio (%) 13.4 11.9 10.9 10.6
No. of Outstanding Shares (mln) 53.5 PER (x) 9.7 8.5 7.8 7.7
52-week Share Price Range (MYR) 1.13 - 3.60 P/Cash Flow (x) 5.7 5.6 5.5 4.5
Major Shareholders: % P/Book Value (x) 1.9 1.6 1.4 1.2
Dato’ Lim Kheng Yew 16.1 Dividend Yield (%) 1.4 1.4 1.4 1.4
Lim Tze Thean 11.8 ROE (%) 21.4 19.9 18.2 15.9
Koperasi Polis Diraja Malaysia Berhad 6.7 Net Gearing (%) 0.0 0.0 0.0 0.0
*Stock deemed Shariah compliant by the Securities Commission.

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 1 of 4
TSM Global
Recommendation: BUY
Stock Code: 8842 Bloomberg: TSM MK Price: MYR3.60 12-Month Target Price: MYR4.30 Date: March 31, 2010

Quarterly Performance
FY Jan. / MYR mln 4Q10 4Q09 % Change
Reported Revenue 73.1 60.0 21.9
Reported Operating Profit 17.0 5.6 >100
Depreciation & Amortization -2.5 -2.8 -10.9
Net Interest Income / (Expense) 0.0 -0.2 -87.9
Reported Pre-tax Profit 18.8 6.0 >100
Reported Net Profit 7.6 1.5 >100
Reported Operating Margin (%) 23.3 9.3 -
Reported Pre-tax Margin (%) 25.7 10.0 -
Reported Net Margin (%) 10.4 2.6 -
Source: Company data

Profit & Loss


FY Jan. / MYR mln 2009 2010 2011E 2012E
Reported Revenue 268.2 258.2 275.5 303.7
Reported Operating Profit 47.2 50.4 54.2 59.3
Depreciation & Amortization -11.8 -10.4 -17.8 -18.4
Net Interest Income / (Expense) -0.8 -0.4 -0.5 -0.6
Reported Pre-tax Profit 48.4 54.7 57.7 62.6
Effective Tax Rate (%) 24.0 23.3 23.3 23.4
Reported Net Profit 22.5 24.6 25.2 26.9
Reported Operating Margin (%) 17.6 19.5 19.7 19.5
Reported Pre-tax Margin (%) 18.0 21.2 21.0 20.6
Reported Net Margin (%) 8.4 9.5 9.1 8.9
Source: Company data, S&P Equity Research

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 2 of 4
Required Disclosures

Standard & Poor’s Equity Research Services securities they represent. Such costs would lower performance. It is not possible to
Standard & Poor’s Equity Research Services U.S. includes Standard & Poor’s invest directly in an index.
Investment Advisory Services LLC; Standard & Poor’s Equity Research Services
Europe includes Standard & Poor’s LLC- London; Standard & Poor’s Equity Standard & Poor's and its affiliates provide a wide range of services to, or relating
Research Services Asia includes Standard & Poor’s LLC’s offices in Hong Kong to, many organizations, including issuers of securities, investment advisers, broker-
and Singapore, Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’s dealers, investment banks, other financial institutions and financial intermediaries,
Information Services (Australia) Pty Ltd. and accordingly may receive fees or other economic benefits from those
organizations, including organizations whose securities or services they may
Glossary recommend, rate, include in model portfolios, evaluate or otherwise address.

Strong Buy: Total return is expected to outperform the total return of the KLCI or CMDF-Bursa Research Scheme (“CBRS”)
KL Emas Index respectively, by a wide margin over the coming 12 months, with This report has been prepared by S&PM for purposes of CBRS administered by
shares rising in price on an absolute basis. Bursa Malaysia Berhad, independent from any influence from CBRS or the subject
Buy: Total return is expected to outperform the total return of the KLCI or KL Emas company. S&P will receive total compensation of RM15,000 each year for each
Index respectively, over the coming 12 months, with shares rising in price on an company covered by it under CBRS. For more information about CBRS, please
absolute basis. visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/website/bm/
Hold: Total return is expected to closely approximate the total return of the KLCI or
KL Emas Index respectively, over the coming 12 months with shares generally
rising in price on an absolute basis. Disclaimers
Sell: Total return is expected to underperform the total return of the KLCI or KL This material is based upon information that we consider to be reliable, but neither
Emas Index respectively, over the coming 12 months and share price is not S&P nor its affiliates warrant its completeness, accuracy or adequacy and it should
anticipated to show a gain. not be relied upon as such. With respect to reports issued to clients in Japan and in
Strong Sell: Total return is expected to underperform the total return of the KLCI or the case of inconsistencies between the English and Japanese version of a report,
KL Emas Index respectively, over the coming 12 months by a wide margin, with the English version prevails. With respect to reports issued to clients in Germany
shares falling in price on an absolute basis. and in the case of inconsistencies between the English and German version of a
report, the English version prevails. Neither S&P nor its affiliates guarantee the
accuracy of the translation. Assumptions, opinions and estimates constitute our
S&P 12 Month Target Price – The S&P equity analyst’s projection of the market judgment as of the date of this material and are subject to change without notice.
price a given security will command 12 months hence, based on a combination of Neither S&P nor its affiliates are responsible for any errors or omissions or for
intrinsic, relative, and private market valuation metrics. results obtained from the use of this information. Past performance is not
necessarily indicative of future results.
Shariah-compliant stock - As defined by the Shariah Advisory Council of
Malaysia’s Securities Commission This material is not intended as an offer or solicitation for the purchase or sale of
any security or other financial instrument. Securities, financial instruments or
strategies mentioned herein may not be suitable for all investors. Any opinions
Required Disclosures expressed herein are given in good faith, are subject to change without notice, and
are only correct as of the stated date of their issue. Prices, values, or income from
All of the views expressed in this research report accurately reflect the any securities or investments mentioned in this report may fall against the interests
research analyst's personal views regarding any and all of the subject of the investor and the investor may get back less than the amount invested. Where
securities or issuers. No part of analyst compensation was, is, or will be, an investment is described as being likely to yield income, please note that the
directly or indirectly, related to the specific recommendations or views amount of income that the investor will receive from such an investment may
expressed in this research report. fluctuate. Where an investment or security is denominated in a different currency to
the investor’s currency of reference, changes in rates of exchange may have an
Additional information is available upon request. adverse effect on the value, price or income of or from that investment to the
investor. The information contained in this report does not constitute advice on the
tax consequences of making any particular investment decision. This material is not
intended for any specific investor and does not take into account your particular
investment objectives, financial situations or needs and is not intended as a
Other Disclosures recommendation of particular securities, financial instruments or strategies to you.
Before acting on any recommendation in this material, you should consider whether
This report has been prepared and issued by Standard & Poor’s and/or one of its
it is suitable for your particular circumstances and, if necessary, seek professional
affiliates. In the United States, research reports are prepared by Standard & Poor’s
advice.
Investment Advisory Services LLC (“SPIAS”). In the United States, research reports
are issued by Standard & Poor’s (“S&P”); in the United Kingdom by Standard & For residents of the U.K. This report is only directed at and should only be relied on
Poor’s LLC (“S&P LLC”), which is authorized and regulated by the Financial by persons outside of the United Kingdom or persons who are inside the United
Services Authority; in Hong Kong by Standard & Poor’s LLC, which is regulated by Kingdom and who have professional experience in matters relating to investments
the Hong Kong Securities Futures Commission; in Singapore by Standard & Poor’s or who are high net worth persons, as defined in Article 19(5) or Article 49(2) (a) to
LLC, which is regulated by the Monetary Authority of Singapore; in Malaysia by (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order
Standard & Poor’s Malaysia Sdn Bhd (“S&PM”), which is regulated by the 2005, respectively.
Securities Commission; in Australia by Standard & Poor’s Information Services
(Australia) Pty Ltd (“SPIS”), which is regulated by the Australian Securities & For residents of Singapore - Anything herein that may be construed as a
Investments Commission; and in Korea by SPIAS, which is also registered in Korea recommendation is intended for general circulation and does not take into account
as a cross-border investment advisory company. the specific investment objectives, financial situation or particular needs of any
particular person. Advice should be sought from a financial adviser regarding the
The research and analytical services performed by SPIAS, S&P LLC, S&PM, and suitability of an investment, taking into account the specific investment objectives,
SPIS are each conducted separately from any other analytical activity of Standard financial situation or particular needs of any person in receipt of the
& Poor’s. recommendation, before the person makes a commitment to purchase the
investment product.
A reference to a particular investment or security by Standard & Poor’s and/or one
of its affiliates is not a recommendation to buy, sell, or hold such investment or For residents of Malaysia. All queries in relation to this report should be referred to
security, nor is it considered to be investment advice. Alexander Chia, Desmond Ch’ng or Ching Wah Tam.
Indexes are unmanaged, statistical composites and their returns do not include
payment of any sales charges or fees an investor would pay to purchase the

Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 3 of 4
Required Disclosures

Recommendation and Target Price History P rice (M YR)


Date Recommendation Target Price 4.0
New Buy 4.30
26-Mar-10 Buy 3.80
3.5
28-Dec-09 Buy 2.30
30-Sep-09 Buy 2.00
29-Jun-09 Hold 1.40 3.0
1-Apr-09 Hold 1.30
30-Dec-08 Buy 1.70 2.5
26-Sep-08 Buy 1.80
23-May-08 Buy 1.64
2.0

1.5

1.0
Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10

Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 4 of 4