Highlights

• Briefing was concluded with multiple positive key takeaways, including bullish SME and consumer segment growth ahead and improved economies of scale yielding margin expansion by sweating their assets. These were the drivers for TdC to achieve record sales and profit in FY14.

• The only negativity is APG’s construction is severely behind schedule due to China’s terrestrial issues. Its RFS date is now further delayed by another 9 months to 2Q16. Somewhat a disappointment, but we are not overly concern as TdC continued to show its ability to pre-sell them to monetize and accelerate returns on investments. As of 4Q14, this has increased by 52.2% qoq to RM21.9m.

• Construction of cable landing station for AAE-1 has started and marine works to commence in next few quarters. While, FASTER is currently under manufacturing stage.

• Revenue growth breakdown by segment:

• Revenue growth breakdown by product:

• Upped FY15 CAPEX guidance to circa RM450m (previously RM400m), majority to fund submarine cables. However, this may potentially spill over to FY16 due to the RFS delay of APG according to progress payment.

Catalysts

• Exponential global demand for data bandwidth.

• LTE node fiberization.

• Co-location, 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

• Tweaked model based on latest operational data, FOREX and CAPEX guidance. As a result, our FY14-16 EPS were revised upward by 0.3% and 11.5%, respectively.

Rating

BUY , TP: RM6.13

Positives

• - by tapping into new growth areas such as globalbandwidth and data centre.

Negatives

• price erosion in wholesale segment.

Valuation

• Maintain BUY after raising our SOP-derived TP by 7.0% from RM5.73 to RM6.13 (see Figure #1) reflecting the upward forecast revision as well as imputing lower WACC of 9.6% vs. previous’ 10.7%. For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 2 Mar 2015