Results

• FY15 turnover of RM682.4m was translated into a core net profit of RM158.7m, which came within HLIB’s expectations, but shy of street’s full year estimates by 28.2%.

Deviations

• In line.

Dividend

• Declared an interim tax exempt (single t ier) dividend of 6.7 sen (4Q14: 5.6 sen) per share. Inclusive of special dividend, FY15 distribution amounted to 80.2 sen (FY14: 5.6 sen) per share, in line with our forecast.

Highlights

• QoQ: top line was flat as data’s growth which was attributable to global bandwidth sales (GBS) was negated by the declines recorded by both data centre and voice. However, bottom line came in weaker in 4Q15 due to (1) PPE write-off amounted to RM4.4m; and (2) significantly lower net FOREX gain of RM3.6m vs. RM19.0m in 3Q15.

• YoY: Higher as data, voice and data centre expanded 9%, 7.4% and 14.8%, respectively. Nonetheless, profit declined as a result of lower (1) contribution from high margin GBS and non-recurring contracts in 4Q15 with RM17.2m vs. 4Q14’s RM21.6m; (2) dividend income after partial disposal of DiGi stake; (3) PPE write-off amounted to RM4.4m; and (4) net FOREX gain.

• TdC expects a challenging 2016 amid intense competition and uncertain global economic environment, but remains optimistic and confident to seize regional opportunities. Excited about APG and FASTER cables which are expected to be ready for service in mid-2016 and contribute positively.

• Domestically, it will intensify efforts to gain market share by improving QoS, enhance product and solution offerings and elevate productivity.

• Highlighted the potential of margin compression as a result of such capital intensive initiatives. However, it believes that these are necessary to ensure sustainable growth in the future and are expected to reap benefits over the longer term.

• 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 competition, regulatory risks and contraction in demand for wholesale bandwidth.

Forecasts

• Unchanged pending analyst briefing.

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 with unchanged SOP-derived fair value of RM6.53 (see Figure #4).

Source: Hong Leong Investment Bank Research - 25 Feb 2016