News

Redtone (RIB) announced that the board of RIB has approved to change its financial year end from 31 May to 30 April. This is to coincide with the financial year end of its holding company – Berjaya Corporation Berhad. The next audited financial statements shall be for a period of eleven months, made up from 1 June 2015 to 30 April 2016.

On separate news, the group also launched a new mobile application – CitiAct recently, to enable people to lodge cases involving the community to the local councils, such as crime, flash floods, landslides, potholes and drainage issues and etc.

Management believes that the company could leverage on the new app and have access to 100k users in the next one month.

The group was confident that the app would contribute about 5% towards group revenue in the next three years, according to press.

Comments

The change in a financial year end is within management earlier guidance.

On the new service application front, while we concur with the management that the mobile app could draw ample of attraction from public, however, we are taking a conservative view not to impute any into our financial model at this juncture until a solid set of results is shown.

Outlook

Management continued to remain hopeful for FY16, underpinned by its healthy order book of RM110m (which comprised of RM90m Universal Service Provision (USP) projects, and RM20m WiFi projects in various states). Meanwhile, we also understand that RIB is keeping its intention to seek for a transfer to Main Board listing by year-end.

Having said that, there is a likelihood the group may face another challenging quarter in 1Q16 as there is no solid progress in its T3 extension project coupled with the shortened reporting period post the change in financial year-end.

Forecast

We make no change in our earnings forecast given we had revised our numbers lower post the FY15 result review to reflect the latest USP projects’ implementation timeline as well as the shortened reporting period.

Rating

Maintain MARKET PERFORM. Accept offer as the offer price of RM0.80 is higher than our RM0.77

Valuation

We maintain our RIB fair value of RM0.71, based on an unchanged targeted FY16E PER of 15.2x (a 30% discount to the big cap telco’s FY16 PER, in-line with its 3-year historical 25%-30% discount range).

Risks to Our Call

Failure to secure more corporate and government projects and impairment costs.

Source: Kenanga Research - 10 Aug 2015