Results

• 1Q15 turnover of RM171.7m was translated to a core net profit of RM47.6m, accounting for circa 31% of HLIB and street’s full year estimates.

• This is deemed in line considering the stronger lumpy global bandwidth sales (GBS) and lower dividend income ahead due to the reduced DiGi’s stake.

Deviations

• In line.

Dividend

• None (1Q14: none).

Highlights

• After disposing 49.9m (1st block) in April, TdC disposed another 18.8m (2nd block) DiGi shares in May via private placement. However, 2nd block was sold at RM6.00, lower compared to 1st block’s RM6.23. All in, TdC will realize a fair value gain from available-for-sale reserve to profit and loss of RM274.0m in 2Q15. TdC has a balance of 67.3m DiGi shares or 0.87% stake.

• TdC signed a conditional agreement to acquire a 25.37% stake in CMC Telecommunication Infrastructure (CMC TI) Corporation from Vietnam for circa USD12.0m to be satisfied fully in cash. This is expected to be completed by mid-2015.

• Similar to TdC, CMC TI offers fixed telco (100% fibre) and data centre services chiefly focusing in enterprise market. It has partnership with VNPT, Viettel, EVN Telecom, SingTel, Hutchinson, PCCW, KDDI and others.

• QoQ: stronger top line (+9%) was mainly due to higher contributions from data and data centre businesses which gained 11% and 15% qoq, respectively. Data revenue was mainly lifted by GBS with a remarkable growth of 83% qoq.

• YoY: the growth of 30% was even more encouraging will all product segments recorded gain with voice, data and data centre expanding by 38%, 1% and 15%, respectively.

• 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.

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: RM6.78

Positives

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

Negatives

• price erosion in wholesale segment.

Valuation

• Reiterate BUY with unchanged SOP-derived fair value of RM6.78 (see Figure #3), pending analyst briefing. For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 28 May 2015