Author: kltrader | Publish date: Wed, 1 Jun 2016, 09:50 AM
Results
- 1Q16 turnover of RM175m was translated into a core net profit of RM46m, accounting for 21% and 24% of HLIB and street’s FY estimates, respectively.
- Seasonal weakness associated with global bandwidth sales (GBS) and non-recurring contracts which are higher margin in nature. Given that APG and FASTER will be operational by mid-2016, presale earnings will be booked accordingly.
Deviations
- In line.
Dividend
- None (1Q15: none).
Highlights
- Revenue was flat yoy and qoq due to smaller contributions by GBS and non-recurring contracts leading to contractions in data segment neutralizing the growth posted by voice and data centre. However, the underlying recurring data revenue momentum remained with +22% yoy and +10% qoq.
- Increased footprint in Vietnam via increased stake in CMC Telecom from 43.8% to 45.3% as of end of 1Q16.
- Disposed entire equity stake in Camapana for a cash consideration of USD1m and expected to result in a gain of circa RM2.6m reflected TdC’s 2Q16 results.
- Presale for GBS is observed to be progressing well as total current and non-current deferred income swelled by 22.8% qoq from RM372m to RM457m in 1Q16.
- TdC expects a challenging 2016 amid intense competition and uncertain global economic environment, but remains optimistic and confident to seize regional opportunities. Excited about APG and FASTER cables which are expected to be ready for service in mid-2016 and contribute positively.
- Domestically, it will intensify efforts to gain market share by improving QoS, enhance product and solut ion offerings and elevate productivity.
- Highlighted the potential of margin compression as a result of such capital intensive initiatives. However, it believes that these are necessary to ensure sustainable growth in the future and are expected to reap benefits over the longer term.
- Catalysts
- Exponential global demand for data bandwidth with quality.
- LTE node fiberization.
- Co-location, cloud computing and virtualization driving higher demand for data centre.
Risks
- Irrational wholesale pricing and competit ion, regulatory risks and contraction in demand for wholesale bandwidth.
Forecasts
- Unchanged.
Rating
HOLD, TP: RM6.46- Positives - by tapping into new growth areas such as global bandwidth and data centre.
- Negatives – price erosion in wholesale segment.
Valuation
Reiterate HOLD with unchanged SOP-derived fair value of RM6.46 (see Figure #3).Source: Hong Leong Investment Bank Research - 1 Jun 2016
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