Period

1Q16 Actual vs. Expectation

Below expectation. Redtone International (RIB) reported a PATAMI of RM0.538m in 1Q16 which merely accounted for 1.8% of our former full-year NP estimate of RM30.5m. Note that, RIB has changed its FYE to April (from May previously). Thus, 1Q16 only recognised 2-month earnings contribution.

The disappointing 1Q16 was mainly due to the T3 extension project deferment (for the third consecutive quarter) as well as higher operating expenses on the back of steeper payroll costs, advertising expenses and foreign currency losses.

Dividends

No dividend was declared during the quarter.

Key Results Highlights

No comparable financial numbers were provided by the management as the group has changed its FYE to April. Nevertheless, for illustrative purposes, we have split the former quarters into two months for the sake of comparison.

YoY, 1Q16 revenue grew relatively flattish at 1% to RM23.0m as a result of another deferment of the T3 extension project, which led to the data segment’s revenue climbing merely 13% (to RM12.6m) but largely offset by lower voice (-2% to RM10.4m) and other segment revenues (i.e. sale of telecommunication software, goods and installation charges). Its PATAMI meanwhile plunged 82% to RM0.5m as a result of lower GP margin coupled with higher OPEX as well as higher foreign-currency losses (RM0.34m vs. RM0.07m a year ago).

QoQ, turnover improved by 8% as a result of better data segment’s revenue contribution. Its PATAMI, however, returned to profit of RM0.5m vs. –RM1.0m in the preceding quarter that was mainly caused by higher OPEX (which include ESOS-related cost and foreigncurrency loss).

Outlook

There is a likelihood the group may face another challenging quarter in 2Q16 as there is no solid progress in its T3 extension project in both August and September. Nevertheless, management remains hopeful to resume the project in October as it has been reviewed by the new authorities.

Meanwhile, management is planning to resume the transfer of listing (to Main Board) in FY16 following the release of its FY15 audited accounts. On top of that, we also understand that the group and its parent company – Berjaya Corp, are evaluating some proposals, which we believe could involve U Mobile. Market had earlier speculated that some corporate exercises could be in the making given the common shareholders between RIB and U Mobile.

Change to Forecasts

Post-results, we have slashed our FY16E revenue/net profit by 12.5%/23.0% to RM173m/RM23.5m, to reflect the latest USP projects’ implementation timeline post the deferment coupled with higher interest cost as a result of higher currency volatility.

Rating

Maintain MARKET PERFORM

Valuation

We have lowered our fair value to RM0.61 (from RM0.71 previously), based on a targeted FY16E PER of 16.8x (a 25% 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.

Source: Kenanga Research - 29 Sep 2015