Results

9M13 core net profit of RM105.3m came in within expectation, accounting for 73% of HLIB full year forecasts but beat consensus estimate by 13.3%, if annualized.

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

Within expectation.

Dividend

None.

Highlights

3Q13 top line grew healthily by 20% yoy due to higher contributions from all products, especially from data. However, sales contracted qoq by 2% due to recognition of RM4.3m income from a non-recurring contract in 2Q13. If adjusted, it would have reflected a growth of 1.6%.

3Q13 higher expenses dragged EBITDA margin by 1.1-ppt yoy and 4.2-ppt qoq mainly due to repair works for fibre cut and net allowance for doubtful debts.

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

• Exponential global demand for data bandwidth with quality.
• LTE node fiberization.
• Colocation, cloud computing and virtualization driving higher demand for data centre.
• Dividend distribution

Risks

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

Forecasts

Maintained.

Rating

HOLD, TP: RM4.03

Positives - by tapping into new growth areas such as global bandwidth and data centre

Negatives – price erosion in wholesale segment.

Valuation

After the bullish share price performance, we downgrade our rating from BUY to HOLD despite the increase in our SOPderived fair value by 1% from RM3.99 to RM4.03 (see Figure #4), mainly to reflect our revised TP for DiGi share. For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source:Hong Leong Investment Bank Research - 22 Nov 2013