Maintain  NEUTRAL  and  MYR5.20  TP  (-1%  downside)  post-results  call. Management  highlighted  some  softening  in  bandwidth  and  enterprise sales  due  to  competition  and  a  shift  in  demand  for  mass-market  type broadband offerings.  Still,  it  has managed to  lock in some presales for the APG, which should sustain double-digit growth in FY15 revenue and EBITDA, backed by additional node fiberisations jobs from the telcos. 

Wholesale  business.  Management  highlighted  that  the  traditional wholesale/enterprise  business is seeing  some  signs of softening  due to the  structural  shift  in  demand  for  cheaper-priced  retail  type  broadband offerings and competition from Telekom Malaysia (T MK, NEUTRAL, TP: MYR7.10),  which  has  introduced  a  broadband  product  for  small-  and medium-sized  enterprises  (SMEs).  Nonetheless,  management  expects the wholesale  segment  (9M14: +12% YoY)  to offer a steady stream of recurring  revenues  with the SME  segment  (9M14: +24% YoY) emerging as the new leg of growth.  

Asia  Pacific  Gateway  (APG)  delayed  to  3Q15.  Due  to  delays  in procuring  site  permits  in  China,  the  completion  of  the  APG  submarine cable  has been delayed  to 3Q15  (from 1Q15).  Whilst a disappointment, we  note  that  Time  dotcom  (Time)  has  presold  MYR14.4m  worth  of bandwidth (a combination of indefeasible rights of use (IRU) and leasing) ahead of the completion of  its  cable projects, which  should lend support to its FY15 earnings.    
Capex  likely  to surge in 2015.  It  expects an acceleration in capex  to about  MYR400m  in  FY15  from  slightly  more  than  MYR200m  in  FY14 (9M14: MYR195.3m),  due mainly to the investments in the APG,  AsiaAfrica-Europe-1  (AAE-1)  and  FASTER  cables.  The  capex  spending  is likely to normalise to the run rate of c.MYR200m in FY16. 

Forecast  and  risks.  Our  FY14-16  earnings  forecasts  are  unchanged. Key  risks  to  our earnings  forecasts  are:  i)  stiffer  domestic  competition, and ii) a sharper-than-expected decline in international bandwidth prices.

NEUTRAL.  We  maintain  our  DCF-derived  TP  of  MYR5.20  (WACC: 7.4%,  TG:  1.5%).  Further  re-rating  catalyst  could  come  from  regional merger and acquisition (M&A) plans. 

Source: RHB