Results

• 1Q17 turnover of RM218.4m was translated into core net profit of RM55.5m, accounting for 23.4% and 24.2% of HLIB and street’s full year estimates, respectively. Results are within expectations considering 1Q’s seasonal weakness (1Q16 core PAT accounted for 23.8% of FY16’s).

Deviations

• In line.

Dividend

• None (1Q16: none).

Highlights

• QoQ: Revenue eased 1% mainly due to lower one-off IRU sales and non-recurring contracts. Importantly, recurring sales was actually flat despite seasonal weakness where data centre’s growth was sufficiently offset voice’s contraction. After adjusting for some major one-off items including FOREX and deferred tax in 4Q16 that amounted to RM44.2m, core net profit fell by 7% due to lower sales and effective tax rate.

• YoY: Top line surged 25% as one-off IRU sales and non recurring contracts jumped more than 6 folds while recurring revenue also expanded by 13% supported by improvements in data centre +20%, data +13% and voice +4%. Even in the absence of dividend income after full disposal of DiGi stake and higher D&A charge, core earnings rose by 21% thanks to better economies of scale.

• TdC is encouraged by its FTTH offerings and will look into opportunities to further tap into this market segment. It will continue to expand and strengthen its underlying fibre network and coverage footprints while maintaining prudent financial management.

• The proposed SYMC investment, which should complete before end of FY17, is expected to further enhance TdC’s presence in Thailand.

• Analyst briefing will be hosted this morning which we expect to grasp better understanding of the company outlook.

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 ↔

• As more undersea cables are RFS, wholesale is poised to return with strong growth trajectory underpinning its ASEAN ambition. Retail is gaining momentum on the back of reach expansion and undisputable high value products. Also, data centre is expanding resiliently as IT outsourcing, cloud computing and virtualization gain wide adoption.

Valuation

• Reiterate BUY with unchanged SOP-derived TP of RM10.28 (see Figure #3)

Source: Hong Leong Investment Bank Research - 1 Jun 2017