With TdC’s shares having gone ex yesterday with regards to its dividend-in-specie exercise, we adjust our fair value on TdC accordingly to MYR4.05. TdC shareholders should receive their entitlement for the DiGi shares (24 DiGi shares for every 100 TdC shares held) on 20 June. Maintain BUY. 
 
- Adjustment to fair value. With TdC shares having gone ex yesterday with regards to its dividend-in-specie exercise, we adjust our fair value on TdC accordingly to MYR4.05.  Our SOP fair value is based on an unchanged target PER multiple of 14x to TdC’s core (excluding DiGi’s dividends) FY14 EPS of 20.1 sen plus the remaining 137.5m DiGi (based on fair value of MYR5.20/share) shares held.

- Timeline of dividend-in-specie exercise. TdC shareholders should receive their entitlement for the DiGi shares on 20 June. Recall that the exercise entails 24 DiGi shares distributed for every 100 TdC shares held, involving a total of 137.5m DiGi shares.

- Positive outlook. Management expects domestic data (driven mainly by its domestic Wholesale segment) to continue to grow steadily, as higher demand is expected from mobile operators with the introduction of LTE (Long Term Evolution) services. The recent 1Q results suggest that TdC could capture additional lumpy node fiberisation contracts as mobile operators continue to fiberise their backhaul for LTE services.

- Investment case. Maintain BUY on TdC with adjusted fair value of MYR4.05. A regional expansion via M&A will be positive in our view if it is strategic in tapping strong data demand from Thailand and possibly Indo-China to fill up capacity in the upcoming Asia Pacific Gateway cable (TdC has an effective stake of about 6%), which is due for completion by end-2014. We like TdC for cheaper valuations compared to its domestic peers and strong growth prospects in the regional bandwidth business.

Source: RHB