News  Redtone (RIB) announced its wholly-owned subsidiary, Redtone Marketing S/B, had received the letter of award from MCMC to build, operate and maintain radio access network (RAN) infrastructure in rural areas in Sarawak and Johor as part of MCMC’s Time 3 (T3) programme.

 MCMC’s RAN‘s T3 Phase 3 program is aimed at further providing voice and data connectivity in rural areas of the country.

 The contract value is worth RM88.572m and targeted to be completed in 2017.

Comments  We are POSITIVE on the long awaited T3 extension project award given that the contract is expected to contribute positively to the group’s FY15-FY17 earnings.

 Assuming an EBIT margin of 35% (similar to the T3 project awarded in 2012), the project is expected to contribute RM31m to the group’s earnings during the contract period.

 We understand that there are approximately 83 sites to be built under the T3 extension contract of which c.70 sites are located in Sarawak.

Outlook  RIB is expected to resolve the qualified opinion expressed by its external auditor for the FY14 accounts in coming weeks. The amounts are recoverable following a series of projects’ awards and we believe this will be POSITVE. To recap, Messrs. Crowe Harwarth, the company’s external auditors, have expressed a qualified opinion in their report in respect of a debt owing by a third party that stood at RM15.6m for the financial year ended 31st May 2014.

 Other near-term catalysts include: (i) synergistic benefits that could be created under the NSA agreement with Maxis, and (ii) continuous government & corporate data-related projects (i.e. teleradiology & healthcare solutions), and (ii) transfer to Main Board listing.

Forecast  There is no change in our earnings forecasts for now given that management has yet to finalise the project recognition schedule. Having said that, we believe there are some rooms for us to upgrade FY15 earnings forecast as we have only imputed RM30m new contracts in our financial model.

Rating Maintain MARKET PERFORM

Valuation  Maintained target price at RM0.77 based on unchanged FY15 targeted PER of 14.5x (+0.5SD).

Risks to Our Call Failure to secure more corporate and government

projects and impairment arises.

Source: Kenanga