Redtone (RIB) is expected to see some interesting developments in the coming weeks, which could bode well for its long-term prospects, if materialised. The group’s FY14 net profit is expected to come in lower at c.RM25m (a similar quantum recorded in FY13) due to the delay in T3 project billing but will still allow RIB to meet the transfer listing requirements. We understand that management intends to submit the transfer listing application post the release of its FY14 audited account. We have lowered our FY14 net profit estimate to RM25.4m (-6.4%) but raise the FY15 forecast to RM31.7m (from RM28.2m previously) after factoring in: (i) the latest T3 project billing schedule and (ii) better margins assumption as a result of more network maintenance works. Despite higher earnings estimate, the group’s FY15 fully-diluted EPS is expected to be maintained at 5.6 sen following the full-conversion of its outstanding warrant shares (scheduled to expire on 4 March 2015). We are maintaining our OUTPERFORM call on RIB with a target price of RM0.81 based on unchanged targeted FY15 PER of 14.5x (+0.5x Standard Deviation above its 3-year mean).

Foray into Teleradiology project. RIB is believed to be participating in establishing a teleradiology hub in the city to cater for both the domestic and regional hospitals. The exchange is expected to have a pool of radiologists to interpret CT scans, MRI and even ultrasound images and allows participating hospitals to improve its operational efficiencies as well as reduce their in-house specialist costs. While RIB is reluctant to elaborate further at this juncture, the project is expected to contribute positively to the group's future earnings if materialised.

Project flow continues. MCMC is expected to announce the successful bidders of the public cellular service tendering process under the TIME 3 (T3) extension project in coming weeks. The T3 extension project is expected to be worth c.RM800m and segregate into two clusters, namely the installation of tower and infrastructure (part 1), and the installation of equipment and electronics related to public cellular service under the concept of RAN sharing technology (part 2). While the project details have yet to be ironed out, management believes there is a fair likelihood for the group to participate in the project due to its vast industry knowledge, respectable track record and technical know-how.

Delay in project billing. RIB is unlikely to recognize the final slice of its T3 project (c. 25% out of the RM82.5m contract value awarded in the year 2012) in the upcoming 4Q14 result due to the delay in billing. Nevertheless, management indicated that the project’s earnings contribution will be recognized in 1Q15 given the group has completed all the network installation work under the agreement.

Aiming to transfer to the Main Market in CY15. RIB is targeting to submit the transfer of listing (to the Main Market) application post the release of its FY14 audited account in September. Management is confident of posting its third consecutive year of profitability in FY14 and meeting one of the transfer's listing requirements (uninterrupted audited profit of 3-5 full financial years with an aggregate PAT of at least RM20m and a PAT for the most-recent financial year of at least RM6m). Note that Redtone has recorded RM2.2m, RM25.2m, and RM14.7m net profit in FY12, FY13, and 9M14, respectively.

Source: Kenanga