Results

• FY14 turnover of RM596.3m was translated into muchanticipated core net profit of RM154.1m, accounting for 99.9% of HLIB’s FY forecasts, but exceed consensus’ by 12.9%.

Deviations

• -.

Dividend

• Declared an interim single-tier dividend of 5.6 sen (4Q13: none) per share which will be paid on 31 Mar 2015. This is below our expectations of 6.7 sen per share.

Highlights

• QoQ: stronger top line (+5%) was mainly due to higher contributions from data and data centre businesses which gained 6% and 5% qoq, respectively. Data revenue was mainly lifted by global bandwidth sales (GBS) with a remarkable expansion of 29% qoq.

• YoY: the growth of 6% was even more encouraging will all product segments recorded gain with voice, data and data centre expanding by 6%, 7% and 4%, respectively. Similarly data business was boosted by 19% increase of GBS.

• YTD GBS which traditionally back-loaded in 4Q, surged 106.7% yoy to RM45.8m, somewhat ahead of expectations.

• TdC will look into unlocking the potential of the combination of data centre and GBS businesses to fuel growth as well as expanding its presence regionally. Locally, TdC expects higher demand from cellcos for LTE rollouts and network modernization going well into 2015.

• TdC also highlighted the potential of margin compression in FY15 as a result of such capital intensive initiatives. However, it believes that these are necessary to ensure sustainable growth in the future and are expected to reap benefits over the longer term.

• Pre-sale of submarine cable should help TdC to monetize and accelerate returns on investments. As of 4Q14, this has increased by 52.2% qoq amounting to RM21.9m.

Catalysts

• Exponential global demand for data bandwidth with quality.

• LTE node fiberization.

• Co-location, cloud computing and virtualization driving higher demand for data centre.

Risks

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

Forecasts

• Maintained pending analyst briefing today.

Rating

BUY , TP: RM5.73

• Positives - by tapping into new growth areas such as globalbandwidth and data centre.
• Negatives - price erosion in wholesale segment.

Valuation

• Reiterate BUY with unchanged SOP-derived fair value of RM5.73 (see Figure #4), pending analyst briefing. For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 27 Feb 2015