Results

Although top line was within expectations, 1Q13 core net profit of RM36.1m marginally exceeded ours and consensus forecasts by 8% (annualized) respectively.

Deviations

Lower than expected COGS and D&A.

Highlights

Overall, data business remains the main driver elevating 1Q13 revenue to reach RM133.0m, translating into qoq and yoy growth rate of 9% and 64% respectively. The significant yoy jump was due to the contributions of newly acquired companies (GTC, GTL and AIMS Group were consolidated in 2Q12) which amounted to RM28.2m.

Besides higher global bandwidth sales and improved take-up of Astro IPTV, 1Q13 data sales which added RM12.0m also include revenue from a one-time non-recurring contract worth approximately RM17.0m of which RM8.5m was recognized in the quarter.

Voice revenue softened by RM0.7m in 1Q13 due to lower international interconnect traffic and lower usage due to holiday seasons.

However, 1Q13 core PATAMI which declined by 28% qoq, after adjustment of RM40.9m of net deferred tax in 4Q12, is attributable to lower DiGi dividend income.

TdC will table the dividend-in-specie proposal for shareholders’ approval in the AGM scheduled on 20th May and expect to complete the exercise in June 2013.

TdC will continue to focus in data centre and global bandwidth sales to fuel growth as well as expanding its presence regionally. It also expects higher demand from cellcos for network modernization and LTE rollouts coupled with contributions from one-off installation revenues.

TdC also highlighted the potential of margin compression as a result of fibre network coverage and data centre expansions which involve higher initial set up and deployment costs.

Catalysts

New acquisitions, when integrated as a group, will further enhance earnings due to volume synergies and the utilization of assets at owner-cost prices.

Exponential global demand for data bandwidth with quality.

Risks

• Irrational wholesale pricing and competition, regulatory risks and a contraction in demand for wholesale bandwidth.

Forecasts

• Unchanged pending analyst’s briefing on 20th May.

Rating

BUY, TP: RM5.14

• Positives - By tapping into new growth areas such as global bandwidth and node fiberisation as well as entering a series of synergistic acquisitions.
• Negatives – price erosion in wholesale segment.

Valuation

• Maintain our BUY call after rolling forward our valuations which resulted in raising our SOP TP by 11.7% from RM4.60 to RM5.14. The fair value of TdC’s DiGi stake remained unchanged with RM4.79 per share. For every 1% change in DiGi price, TdC TP will change by 2 sen.

Source: Hong Leong Investment Bank Research - 17 May 2013