Wall Street KLCI

Kenanga upgrade REDTONE Target Price to 75 sen

Wall Street KLCI
Publish date: Thu, 30 May 2013, 11:45 AM
THIS BLOG IS RELATED TO OBSERVATIONS REGARDING STOCKS TRADED IN MALAYSIA. DISCLAIMER: THE COMPANY ANALYSIS THAT APPEAR IN THIS BLOG IS MERELY FACTS GATHERED FROM DIFFERENT SOURCES AND THE AUTHOR'S PERSONAL VIEW. IT IS NOT A BUY OR SELL RECOMMENDATION. THE AUTHOR DO NOT GUARANTEE THE ACCURACY OF THE FACTS BEING PRESENTED. PLEASE CONSULT YOUR INVESTMENT ADVISORS BEFORE ACTING ON ANY INFORMATION PROVIDED BY THE ANALYSIS ABOVE.

1. Kenanga Research has increased its Target Price for Redtone to 75 sen (from 56 sen previously).
2. The research house has issued a report today on Redtone divestment of 21% stake in its subsidiary, Redtone Network S/B ("RN") to D.Y.M.M. Sultan Ibrahim of Johor for a total cash consideration of RM315k.
3. Full details as attached below:




News
§  REDtone has entered into an agreement to divest a 21% stake in its subsidiary, Redtone Network S/B ("RN") to D.Y.M.M. Sultan Ibrahim of Johor for a total cash consideration of RM315k, bringing the latter's stake to 51%. The divestment is expected to be completed by 15 June 2013.
§  RN, Puncak Semangat and i-Media had been shortlisted by MCMC for the digital terrestrial television broadcast ("DTTB") infrastructure contract in November 2012.
§  REDtone said that the DTTB business would involve continuous investments and a full management commitment and added that the Johor sultan had graciously agreed to invest in the DTTB business should the contract be awarded to RN.
§  Meanwhile, in a separate press release, REDtone said was working with Huawei, Media Broadcast GmbH ("MBG") and PwC in its DTTB bid and is expected to submit a detailed business plan on June 3 for the second tender process. Huawei will be its Technology partner and system integrator while MBG of Europe will design the network and complete the operational requirement for the DTTB project.    


Comments
§  The whole DTTB is likely to cost RM1.0b of which RM300m is to supply set-top boxes based on earlier press report. The strong shareholders in RN will no doubt enhance the competitiveness of its DTTB bid. The group believes that the MCMC is likely to announce the final evaluation result by end-3Q.
§  We understand that the final evaluation will only see one winner selected to roll out the DTTB services to the public in early 2014. A full nationwide coverage is targeted to be reached by end-2015.  


Outlook
§  The group's future earnings are likely to depend on: 1) its ability to secure more USP projects and 2) the degree of aggressiveness of Maxis' 4G LTE services rollout, which we have yet to impute into our forecasts.


Forecast
§  There are no changes in our FY13-FY14 earnings forecasts.


Rating

Maintain OUTPERFORM



Valuation
§  We have raised our target price to RM0.75 (from RM0.56 previously) after rolling over the valuation base year to FY14 with a higher targeted PER of 14.5x (+0.5 SD). We believe the recent positive corporate developments within the group will likely lead to a PER band expansion where we previously valued the company based on a 2-year average PER of 11.0x. 


Risks
§  Dependency on a major partner - Maxis.  
§  Failure to secure more USP programmes.  




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