Highlights

• We left the briefing feeling positive and continue to like its prospect. While exploring opportunities to strengthen its regional ambition through strategic acquisitions, partnerships and JV, TdC is extending reach to new territories and improving presence in the retail segment domestically.

• RFS dates for new submarine cables are on track with APG in 2Q16, FASTER in 2016 and AAE-1 in 2017. Deferred income surged by 53.5% qoq to RM55.4m exhibiting good progress in pre-selling those capacities to monetize and accelerate returns on investments. Price erosion in global bandwidth wholesale remains high at circa 15%-20%.

• Signs of competition cooling off in domestic market with more predictable pricing. Target to expand from 150k to 200k premise-passed by year end to cater for both home (multidwelling) and commercial segments.
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• Very bullish on CMC tie-up due to operational synergy and complementary with APG and AAE-1. Vietnam will not be the only stop, while TdC is evaluation opportunities in Thailand, Myanmar, Indonesia and Singapore.

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 a contraction in demand for wholesale bandwidth.

Forecasts

• Incorporated 2nd block share sale into the model which resulted in downward revision of FY15-17 EPS by 2.2%, 1.3% and 1.6%, respectively. This is mainly due to lower dividend income in line with reduced stake in DiGi.Com.

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 #1). For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 29 May 2015