Period a 2Q15/1H15

Actual vs. Expectations Redtone (RIB)’s 1H15 PATAMI of RM9.7m (0.3% YoY) came in within expectations and accounted for c.33% (1H14: 43%; 1H13: 24%) of our full-year estimate. The results are deemed in line as more corporate & government projects (i.e. T3 extension, WiFI & broadband projects) will be recognized in 2H15, especially in 4Q15.

Dividends  No dividend was declared as expected.

Key Results Highlights  YoY, 1H15 revenue improved by 19% to RM79.0m mainly due to the higher contribution from both its data (+6% to RM42.0m) and voice (22% to RM32.6m) segments. The former was mainly driven by higher T3 project recognition (c.RM24.5m vs. RM18.3m a year ago) while the latter was mainly boosted by the higher demand on its prepaid and top-up services in China market. The group’s EBITDA, however, was lowered by 6% to RM14.4m, due mainly to the higher staff cost and administrative expenses.

 QoQ, turnover climbed 31% as a result of the higher data revenue that was mainly led by higher T3 project recognition (RM20m vs. RM4.5m in 1Q15). Its PBT, however, improved at a slower pace of 10% to RM5.5m due mainly to the absence of disposal gain (1Q15: RM5.0m gain on disposal of 35% stake in Redtone Mobile S/B). Its PATAMI, meanwhile, climbed 20% to RM5.3m, thanks to lower minority interest during the quarter.

Outlook  Moving forward, data, broadband and managed services will continue to provide growth engines to the group’s earnings. RIB also expects its managed value-added services sector, namely teleradiology and healthcare solutions initiatives (under REDtone MEX S/B) to contribute positively to the group’s future earnings.

 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 (iii) transfer to Main Board listing.

Change to Forecasts    Post-results, we have lowered our FY15E net profit marginally to RM29.7m (-0.8%) after finetuning.

Rating Maintained MARKET PERFORM

Valuation  Maintained our RIB target price at RM0.77 based on unchanged FY15E targeted PER of 14.5x (+0.5SD).

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

Source: Kenanga