Highlights

• Announced an interim tax exempt (single tier) special dividend of 73.5 sen per share with ex-date on 13 July 2015.

Comments

• A positive surprise as we were speculating that the proceeds from DiGi share disposal may be utilized for regional M&As.

• Recall that TdC disposed 68.7m DiGi shares in two tranches earlier this year at an average price of RM6.17 per share. Total distribution amounts to circa RM421.9m, representing almost 100% of the disposal proceeds.

• Do not discount that TdC may divvy the remaining 68.8m DiGi shares in the similar manner which may fetch up to RM433.4m based on our in-house TP of RM6.30 per share.

• With 10.7% yield vis-à-vis to peers’ average of circa 4%, this may spur short term market interest. However, given that valuation has ran ahead of fundamentals, we advise investors to take profit as share price strengthens on this latest development.

• Even after returning cash to shareholders, it would not be a challenge for TdC to continue pursuing its regional ambition. With its healthy balance sheet (net cash as of 1Q15), it can easily gear up to fund its expansions.

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

• Unchanged.

Rating

HOLD , TP: RM6.78

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

Valuation

Downgrade from BUY to HOLD as share price has surpassed our fair value and surged 30.5% since our last upgrade on 26 Nov 2014 vis-à-vis to KLCI’s -6%. Our SOPderived TP remains unchanged at RM6.78 (see Figure #1).

Source: Hong Leong Investment Bank Research - 2 Jul 2015