Results

• 9M15 turnover of RM508.8m was translated to a core net profit of RM122.8m, accounting for 82-83% of HLIB and street’s full year estimates.

• This is deemed in line as we remain cautious on the lumpy demand in global bandwidth sales (GBS) in 4Q15 while new cables have yet to RFS.

Deviations

• In line.

Dividend

• None (3Q14: none).

Highlights

• QoQ: top line came in stronger by 6% attributed to better performance by all product segments. Non-recurring from GBS and one-off contracts amounted to RM12.6m vs. RM11.0m in 2Q15. 3Q15 core PBT was aided by net FOREX gain of RM19.0m as USD strengthened +10.6% qoq.

• YoY: sales inched up 15% despite lower GBS and nonrecurring contracts in 3Q15 (RM12.6m vs. RM13.6m in 3Q14) thanks to higher revenue from all product segments. However, EBITDA was lower by 7% due to the recognition of one-off reversal amounted to RM11.0m in 3Q14. If adjusted, it would have improved 12.4%.

• Made inroads into Thailand by acquiring 45.79% stake in KIRZ Holdings Co. Ltd and 49.0% stake In KIRZ Co. Ltd for THB26m (RM3.1m) and THB54m (RM6.4m), respectively. Similar to TdC, KIRZ is a fixed telco providing internet, voice and data centre services with focus in SME segment.

• 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.

• Analyst briefing will be hosted this morning which we expect to grasp better understanding of the company outlook.

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 competit ion, regulatory risks and contraction in demand for wholesale bandwidth.

Forecasts

• Unchanged pending analyst briefing.

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 - 27 Nov 2015