Highlights

• Ceased to be DiGi shareholder after disposing the remaining 68.7m shares or 0.9% stake, through private placement via book building process to eligible third party institution / sophisticated investors.

• At the price of RM4.47 per share, disposal proceeds totaled to a cash consideration of RM307.2m.

• Will realize a fair value gain from available-for-sale reserve equity account to profit and loss of RM157.4m (27 sen per TdC share) from the disposal.

• This investment disposal which deemed to be non-core will allow TdC to re-allocate capital resources for working capital purposes.

Comments

• Complete disposal is rather expected following the last two rounds in 2015, but slightly surprise on the timing and with such a big discount of 26%-28% compared to previous.

• As of end of FY15, TdC had a net cash position of RM94.7m and guided before that it is not planning for any big deal in the near term.

• Funding for new submarine cables should not be a concern as they are secured before entering into consortiums and payments are progressive. Aggressive pre-sale of capacity from those new cables should further ease their funding.

• Thus, we do not discount that this disposal may lead to another round of special dividend as in FY15 where 100% from the disposal proceeds was distributed.

• This may be in line with the recent news on Khazanah’s (TdC second largest shareholder) plan to boost liquidity upon government’s directive by trimming stakes in Axiata, Tenaga Nasional and IHH Healthcare.

• 100% distribution represents 53.3 sen dividend per share or 7.3% yield.

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 more clarity from management and 1Q16 results which will be announced by end of the month.

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 with unchanged SOP-derived fair value of RM6.46 (see Figure #1).

Source: Hong Leong Investment Bank Research - 23 May 2016