Results

• 1H15 turnover of RM335.5m was translated to a core net profit of RM82.7m, accounting for 55-56% of HLIB and street’s full year estimates.

• This is deemed in line considering the stronger lumpy global bandwidth sales (GBS) in 1Q15 and lower dividend income ahead due to the reduced stake in DiGi.

Deviations

• In line.

Dividend

• None (2Q14: none).

Highlights

• QoQ: top line came in weaker by 5% mainly due to lower GBS and non-recurring contracts totaling RM11.0m vs RM31.6m in 1Q15. Excluding these items, TdC would have posted a healthy growth of 9.1% driven by stronger contributions from recurring data, voice and data centre businesses.

• YoY: sales inched up 5% despite lower GBS and nonrecurring contracts in 2Q15 (RM11.0m vs. RM21.0m in 1Q14) thanks to higher revenue from all product segments.

• In 2Q15, one-off items include fair value gain from the realization of available-for-sale reserves of RM274.0m as well as the gain on compulsory land acquisition of RM2.4m.

• TdC is looking to grow inorganically by exploring opportunities within the telco and related sectors in Malaysia and the ASEAN region. This may lead to strategic acquisitions, partnerships and/or JV with other parties, with particular emphasis on regional wholesale bandwidth, international submarine cable and data centre businesses.

• Locally, it will continue to intensify efforts to gain market share by further expanding and strengthening its underlying cable and data centre businesses.

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

• Updated model taking into account of the distribution of special dividend of 73.5 sen per share arising from disposal of DiGi shares. In turn, this has led to reduction of FY15-17 EPS by circa 5.5% mainly due to lower dividend from DiGi and forgone interest income.

Rating

HOLD , TP: RM5.85

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

Valuation

Reiterate HOLD after revising our SOP-derived fair value to RM5.85 reflecting ex-dividend and the earnings revision (see Figure #4). For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 24 Aug 2015