Following the results call with management yesterday, we are raising our FY12/FY13 core earnings forecasts by 11%/2%. Our SOP FV is accordingly raised to RM4.98 given the recent revision in DiGi’s FV. This implies a FY13 PE of 17x, providing a 47% upside from its current share price. We continue to like the stock given the rising demand for bandwidth and reiterate our BUY recommendation. Stripping out the 3.5% stake in DiGi, TDC is valued at only 7x FY13 PE, which we deem as attractive.
IRU sales to rebound from next quarter. As highlighted in our results review note yesterday, TDC’s 3Q12 IRU (Indefeasible Rights of Use) sales were lower q-o-q, which led to the flat topline and bottomline. At its results conference call, management attributed the lack of IRU sales to capacity upgrade on its Unity Cable System as the group is migrating over to 40G cards (from 10G previously) to meet rising demand for bandwidth, especially the connectivity from South East Asia to Japan and the onward link to the US. We expect to IRU sales to rebound in the next 2 quarters, lifting margins in turn. Also, to further augment its IRU offerings, TDC had earlier joined the Asia Pacific Gateway consortium to construct a submarine cable system which is expected to be completed by FY14.
Moving into C&S segment? Even though management did not explicitly express its intention to aggressively tap into the consumer and SME (C&S) segment, we sense that TDC may be moving towards that direction to milk its fibre assets more extensively. This may be supported by the following factors: i) it tied up with Astro to launch IPTV services, ii) it collaborated with Setia Haruman Technology SB to introduce fibre services in Cyberjaya, iii) it lowered price points across all of its fibre plans, and iv) it increased marketing and advertising campaigns for its C&S products in the past two quarters. Although this segment is low-yielding in nature compared to the wholesale and corporate segments, we see no material impact to margins given that it contributes less than 10% to total revenue.
Maintain BUY, FV raised to RM4.98. We are raising our FY12/FY13 core earnings forecasts by 11%/2% respectively following some housekeeping adjustments and also factoring in higher dividend income from its investment in 4Q. We are also introducing our FY14 forecast in this report. All in, TDC’s SOP FV is bumped up to RM4.98 given our recent revision in DiGi’s FV from RM4.07 to RM5.00. We continue to see value in TDC given the rising demand for bandwidth and are reiterating our BUY recommendation on the stock. After deducting the 3.5% stake in DiGi, investors are only valuing the TDC group at 7x FY13 PE, which we deem as attractive.
FYE Dec (RMm)
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
|
Revenue
|
321.1
|
313.9
|
413.7
|
532.8
|
574.5
|
Core Net Profit
|
107.1
|
93.1
|
146.8
|
166.2
|
174.7
|
% chg y-o-y
|
72.3
|
-13.1
|
57.7
|
13.2
|
5.1
|
Consensus
|
129.0
|
158.3
|
182.5
| ||
EPS (sen)
|
18.7
|
16.3
|
25.7
|
29.0
|
30.5
|
DPS (sen)
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
Dividend yield (%)
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
ROE (%)
|
8.6
|
5.3
|
6.6
|
7.0
|
6.8
|
ROA (%)
|
7.5
|
4.8
|
5.7
|
5.9
|
5.8
|
PER (x)
|
18.2
|
20.9
|
13.3
|
11.7
|
11.1
|
BV/share (RM)
|
2.2
|
3.1
|
3.9
|
4.2
|
4.5
|
P/BV (x)
|
1.6
|
1.1
|
0.9
|
0.8
|
0.8
|
EV/EBITDA (x)
|
20.1
|
16.9
|
13.2
|
8.7
|
7.3
|
Table 1: TDC’s SOP valuation
Current FV @ RM4.98
Previous FV @ RM4.52
Note*: We apply a 20% discount to its domestic peer average of 20x FY13 PER to reflect the lack of dividend from TDC.
Source: OSK Research
EARNINGS FORECAST
FYE Dec (RMm)
|
FY10
|
FY11
|
FY12f
|
FY13f
|
FY14f
|
Turnover
|
321.1
|
313.9
|
413.7
|
532.8
|
574.5
|
EBITDA
|
86.8
|
102.3
|
137.0
|
184.6
|
197.7
|
PBT
|
88.9
|
119.0
|
152.2
|
172.5
|
181.6
|
Core Net Profit
|
107.1
|
93.1
|
146.8
|
166.2
|
174.7
|
EPS (sen)
|
18.7
|
16.3
|
25.7
|
29.0
|
30.5
|
DPS (sen)
|
0.0
|
0.0
|
0.0
|
0.0
|
0.0
|
Margin (%)
| |||||
EBITDA
|
27.0
|
32.6
|
33.1
|
34.6
|
34.4
|
PBT
|
27.7
|
37.9
|
36.8
|
32.4
|
31.6
|
Core Net Profit
|
33.3
|
29.6
|
35.5
|
31.2
|
30.4
|
ROE (%)
|
8.6
|
5.3
|
6.6
|
7.0
|
6.8
|
ROA (%)
|
7.5
|
4.8
|
5.7
|
5.9
|
5.8
|
Balance Sheet
| |||||
Non Current Assets
|
1,092.4
|
1,557.5
|
2,071.9
|
2,027.3
|
2,059.1
|
Current Assets
|
343.3
|
393.2
|
513.1
|
781.0
|
946.6
|
Total Assets
|
1,435.7
|
1,950.7
|
2,584.9
|
2,808.3
|
3,005.8
|
Current Liabilities
|
181.7
|
192.8
|
252.6
|
309.8
|
332.6
|
Net Current Assets
|
161.6
|
200.4
|
260.5
|
471.2
|
614.1
|
Non Current Liabilities
|
4.3
|
0.2
|
120.0
|
120.0
|
120.0
|
Shareholders’ Funds
|
1,249.8
|
1,757.7
|
2,212.4
|
2,378.6
|
2,553.2
|
Net Gearing (%)
|
Net Cash
|
Net Cash
|
Net Cash
|
Net Cash
|
Net Cash
|
Source: OSK
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