Results

FY13 turnover of RM548.3m delivered a much anticipated core net profit of RM140.0m, accounting for 97% of HLIB full year forecasts but beat consensus estimate by 14%.

One-off adjustments: 4Q12: net deferred tax of RM40.9m. 2Q13: realization of available-for-sale reserves (DiGi.Com shares) which amounted to RM349.4m. 4Q13: net deferred tax of RM152m.

New acquirees was consolidated (in May 2012) for only 2½ quarters in FY12.

Deviations

Within expectations.

Dividend

None (FY12: none).

As expected, TdC announced the adoption of dividend policy (for FY14 and beyond) to pay an annual dividend of up to 25% of its normalized PAT provided that such distribution will not be detrimental to the Group after taking into account its working capital as well as long term capital requirements.

Highlights

FY13 EBITDA margin advanced by 3.1-ppt to 34.7% and the management attributed this to higher economy of scale as well as contributions from non-recurring revenue.

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.

Catalysts

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

Risks

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

Forecasts

Updated, imputed dividend forecast and rolled over our model. In turn, FY14-15 EPS was slightly revised by -0.3% and +0.8% respectively.

Rating

BUY, TP: RM3.96

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

Negatives – price erosion in wholesale segment.

Valuation

Reiterate BUY call although SOP-derived TP was revised by -1.7% from RM4.03 to RM3.96 (see Figure #4) due dividend distribution which lowers cash balance. For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 26 Feb 2014