Highlights

• Intend to acquire 37% of Symphony Communication (SYMC) via conditional partial voluntary tender offer (PVTO) at a price of THB12.20 per share or a total of THB1.5bn (RM186.7m).

• Upon completion of the proposed acquisition, it will propose for SYMC to undertake a capital-raising exercise via a rights offering for circa THB1.0bn. TdC is committed to participate in this exercise for its pro rata portion, with the option for higher portion while complying with the 49% foreign shareholding limit in SYMC.

• The acquisition consideration shall be satisfied in cash and funded with the mixed of borrowings and internal cash.

• SYMC is a fixed telco in Thailand offering premium high speed data communication network services to mostly wholesale customers, using optical fibre cable for its core network. SYMC offers (1) internet access; (2) private network; (3) international private leased circuit (IPLC); (4) digital broadcast; (5) local loop for IPLC; and (6) access network.

• SYMC has (1) network coverage in Bangkok and its vicinity; (2) IPLC gateways to 4 neighboring countries and point of presence in SG and HK; and (3) joint investment to build Malaysia-Cambodia-Thailand (MCT) undersea cable.

Financial Impact

• No funding concern even TdC decided to fund this entirely by existing cash as it is in a net cash position of RM330.8m as end of FY16. Furthermore, it has RM1bn sukuk programme which has yet to be drawn down.

Comments

• We are positive on this development as Thailand offers great fixed broadband growth prospect due to its low household penetration rate. Besides knowledge transfer to SYMC, there are huge synergies that can be extracted, including product cross / up selling and offering end-to-end solution.

• Minimal business conflict or cannibalization between SYMC and TdC 49%-owned KIRZ due to different market segments: SYMC in wholesale while KIRZ in end user.

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

• Maintained.

Rating

BUY ↔ , TP: RM10.28 ↔

• 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

• Reiterate BUY with unchanged SOP-derived TP of RM10.28 (see Figure #1).

Source: Hong Leong Investment Bank Research - 8 Mar 2017