Results

• 9M16 turnover of RM545m was translated into a much anticipated core net profit of RM133m, accounting for 77% and 78% of HLIB and street’s FY estimates, respectively.

Deviations

• In line.

Dividend

• None (3Q15: none).

Highlights

• QoQ: Revenue grew 11% as all products expanded healthily while higher contributions from higher margin IRU sales and non-recurring contracts boosted EBITDA by 27%. Excluding non-core items, PATAMI grew 50%.

• YoY: Top and bottom line grew 12% and 30%, respectively for the same reasons explained above. Additionally, 3Q16 also no longer enjoyed dividend income after complete disposal of DiGi shares.

• YTD: Top and bottom line grew 7% and 8%, respectively for the same reasons explained above. 9M16 dividend income was also lower at RM3.4m vs 9M15’s RM18.1m.

• APG has finally RFS in Oct after 2-year delay. We view this optimistically as APG would complete its regional connectivity between Malaysia’s CPCS and Unity / FASTER cables. APG will also lower dependency on Singapore as the international gateway and enable TdC to compete more cost effectively

Catalysts

• Exponential global demand for high quality data bandwidth.

• 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

• Although results were within expectations, we turn more bullish post briefing and raise FY16-17 EPS by 4.3% and 2.5%, respectively.

Rating

• BUY , TP: RM8.79

• Wholesale is poised to return to strong growth trajectory after the RFS of more undersea cables while data centre is expanding steadily. Potential for higher dividend payout from the proceeds of DiGi share disposal.

Valuation

• Upgrade to BUY from HOLD after raising SOP-derived TP by 20.7% from RM7.28 to RM8.79 (see Figure #4)

Source: Hong Leong Investment Bank Research - 28 Nov 2016