Results

Although top line was within expectations, 1H13 core net profit of RM77.1m beat estimates, accounting for 58% and 61% of HLIB and consensus full year forecasts respectively.

One-off: 2Q13 results included the realization of availablefor- sale reserves (DiGi.Com shares) which amounted to RM349.4m following the partial distribution of quoted equity investments held by way of dividend-in-specie.

Deviations

Lower than expected COGS led to margins improvements.

Dividend

None.

Highlights

QoQ: top line was relatively flat as higher contributions (+8.2%) from the acquirees (GTC, GTL and AIMS Group), was sufficient to make up the dragged from the existing business (-1.1%). Product wise, the growth from voice and data centre revenues were sufficiently enough to offset the data revenue which surprisingly contracted albeit marginally.

Lower revenue was recorded from non-recurring contract in 2Q13 of RM4.3m compared to 1Q13 of RM8.5m.

YoY: Both quarterly and semiannually results were not comparable as the financial consolidation of the newly acquired companies only took place in May 2012.

2Q13 overall stellar performance is solely attributable to operational enhancements and cost efficiencies, particularly from the existing businesses, resulting in expansion of EBITDA margins by 1.0ppt qoq and yoy.

Voice revenue strengthened by RM720k or 6.3% qoq due to lower international interconnect traffic and lower usage due to holiday seasons in 1Q13.

TdC will continue to focus on data centre and global bandwidth sales to fuel growth as well as expanding its presence regionally. Locally, TdC expects higher demand from cellcos for network modernization and LTE rollouts.

TdC also highlighted the potential of margin compression as a result of fibre network coverage under the Astro partnership 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 but with upside bias.

Rating

BUY
, TP: RM3.99


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 with unchanged SOP-derived TP of RM3.99 (see Figure #4). The fair value of TdC’s DiGi stake remained unchanged at RM4.79 per share. For every 1% change in DiGi price, TdC TP will change by 2 sen.

Source: Hong Leong Investment Bank Research - 23 Aug 2013