Highlights

• The event was concluded without any surprises. While core businesses continue to fuel growth under effective execution, TdC is actively exploring opportunities to strengthen its regional ambition through strategic acquisitions, partnerships and JV. All in, we remain neutral and believe that they are reflected in current share price.

• Although disposal of the remaining DiGi stake and distribution of the proceeds as dividend remains a potential catalyst, TdC shared that currently there is no such plan, especially given the current undemanding valuation.

• Deferred income rose by 14.6% qoq to RM63.5m exhibiting good progress in pre-selling capacities of the new cables (APG, AAE-1 and FASTER) to monetize and accelerate returns on investments.

• 
• After penetrating Vietnam, TdC made inroads into Myanmar by acquiring a 25% stake in Campana Group for USD1.0m. Campana is a startup specializing in fixed network and submarine cable businesses.

• Without disclosing the price tag, TdC only acquired certain Jaring’s debt-free assets including client base (which reported to have unexpired contract worth more than RM50m), IPv4 addresses and domain names.

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

• Unchanged.

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 with unchanged SOP-derived fair value of RM5.85 (see Figure #4). For every 1% change in DiGi price, TdC fair value will change by 2 sen.

Source: Hong Leong Investment Bank Research - 25 Aug 2015