Period FY14

Actual vs. Expectations Redtone’s (RIB) FY14 PATAMI of RM22.6m (-10% YoY) came in below expectations which accounted for 89% of our full-year estimates. The key culprits were mainly: (i)higher-than-expected general & administrative expenses (G&A), which we believe was related to the earlier start-up costs of the teleradiology project and (ii) higher-than-expected minority interests.

 Despite recording a lower PATAMI on a YoY basis, its results should be deemed as healthy in view of the absent of a one-off upfront payment from Maxis, which led RIB to record a 10-fold jump in earnings in FY13.

Dividends  No dividend was declared vs. our 1.5 sen DPS estimate for FY14.

Key Results Highlights YoY, FY14 revenue improved by 2% mainly propelled by the strong contribution from its data segment (+14% to RM86.6m) which was driven by various government projects and higher data and application revenue contribution. PBT, meanwhile, dipped 17% to RM28.0m, due to higher-than-expected G&A expenses and delay in high-margin project recognition. The lower PBT coupled with a higher-than-expected minority interests cost led RIB to report lower PATAMI of RM22.6m (-10%).

 4Q14 PATAMI was lowered to RM7.9m (-48%) due to the absent of a one-off upfront payment seen in 4Q13.

 QoQ, turnover lowered to RM37.3m (-9%) in 4Q14 no thanks to lower data segment revenue as a result of delays in billing of its T3 project. PBT, however, soared by 59% to RM9.9m mainly led by additional high-margin projects recognition.

 RIB has recorded a third consecutive year of profitability, making it qualified in seeking for a transfer to the Main Board in coming months.

Outlook  RIB’s near-term catalysts include: (i) synergistic benefits that could be created under the NSA agreement with Maxis, (ii) continuous government & corporate datarelated projects, and (iii) transfer listing to the Main Board.

Change to Forecasts

 We have lowered our FY15 PATAMI forecasts by 5% to RM30.1m after fine-tuning and raising our minority interest assumption.

Rating Downgraded to MARKET PERFORM

 Despite limited capital upside from here, we recommend investors continue to hold the shares pending the next key catalysts, which could be materialise within the next few weeks.

Valuation  Lowered our RIB target price to RM0.77 (from RM0.81 previously) based on unchanged FY15 targeted PER of 14.5x (+0.5SD).

Risks to Our Call Failure to secure more corporate and government projects.

Source: Kenanga