Highlights

• Left the conference call with some positive key takeaways, including (1) data wholesale grew resiliently albeit worsening domestic market environment; (2) improvement in voice; (3) data center back into high growth with expansion in plan; and (4) big opportunities in enterprise and retail markets.

• Revenue growth breakdown by segment: Growth YoY (%) QoQ (%) YTD (%) Wholesale (incl. Astro and GT co.) +10 +6 +17 Enterprise (incl. AIMS Group) +18 +5 +12 Consumer and SME +33 +6 +33

• Revenue growth breakdown by product: Growth YoY (%) QoQ (%) YTD (%) Data (incl. GT co.) +14 +6 +17 Voice +12 +3 +7 Data Centre (AIMS Group) +25 +9 +20

• RFS for new cables are well on track with APG in 1Q16, AAE-1 in 2017, FASTER in 2Q16 and SKR1M in 2017.

• Deferred income rose by 47.5% qoq to RM93.7m exhibiting good progress in pre-selling capacities of the new cables to monetize and accelerate returns on investments.

• Data center business is returning to Cyberjaya as market stabilized. Plans to build a data warehouse in 2Q16 on a 3- acre land acquired in 1Q15 for RM15.5m.

• 25%-owned Campana plans to construct MYTHIC undersea cable with 10Tbps capacity linking Myanmar, Thailand and Malaysia. This 1,603km cable is targeted to RFS by 3Q16. Currently, it is obtaining necessary approvals.

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

• Raised MYR/USD assumption from 3.5 to 4.0 in global bandwidth sales forecast which in turn led to FY15-17 EPS to increase by 3.1%, 5.4% and 5.1%, respectively.

Rating

• HOLD , TP: RM6.53

Positives

• by tapping into new growth areas such as global bandwidth and data centre.

Negatives

• price erosion in wholesale segment.

Valuation

• Reiterate HOLD after raising our SOP-derived fair value by 11.6% from RM5.85 to RM6.53 (see Figure #4). This revision was resulted from earnings upgrade and lower WACC (from 9.4% to 8.9%) used to value its telco business as beta was updated.

Source: Hong Leong Investment Bank Research - 30 Nov 2015