Highlights

• Left the briefing feeling neutral along with some takeaways: (1) confident to sustain double digit growth in FY16; (2) new regional footprints to drive long term growth; (3) contribution from new cables; and (4) data centre expansion plan.

• 43.8%-owned CMC Telecom is the fourth fixed line telco in Vietnam servicing the enterprise and wholesale markets. CMC who is also a stakeholder in APG cable has nationwide fibre network and 2 data centres in Hanoi and Ho Chi Minh. FY15 pro-forma revenue, EBITDA and operating profit stood at RM142.8m, RM31.3m an RM11.7m, respectively.

• Presence in Thailand via KIRZ (No. 8 infrastructure ISP) with 49% stake with assets including 6 fibre rings and data centre in Bangkok. FY15 pro-forma revenue, LBITDA and operating loss stood at RM21.5m, RM0.3m an RM3.5m, respectively but well positioned for a turnaround.

• RFS for new cables are well on track with APG and FASTER in mid-16, AAE-1 in 1Q17 while SKR1M in 2017.

• FY15 deferred income rose to RM133m implying good preselling progress. RM110m potentially being recognized in FY16 when APG and FASTER commence operations. The remaining RM23m is likely booked for AAE-1.

• Revenue growth breakdown by segment:
• 

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: RM6.46

Positives

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

Negatives

• price erosion in wholesale segment.

Valuation

Reiterate HOLD while SOP-derived fair value was lowered by 1.1% from RM6.53 to RM6.46 (see Figure #1) chiefly to reflect our new TP for DiGi at RM5.78 vs. previous’ RM6.30.

Source: Hong Leong Investment Bank Research - 26 Feb 2016