Saturday, November 2, 2013

Redtone - Earnings Stabilising, Awaits Catalyst (Kenanga)

Redtone -
Price: RM0.74
Target Price: RM0.81
Earnings Stabilising, Awaits Catalyst

Period  1Q14
Actual vs. Expectations REDTONE’s 1Q14 NP of RM3.65m (+82% YoY) came in within our expectation and accounted for 13.6% of our full-year estimate. We understand that the group will recognize more earnings from its RM82.5m government project in the remaining quarters. Coupled with better economies of scale which should benefit margin, this should bring its full-year NP close to our estimate of RM26.8m.

Dividends  No dividend was declared during the quarter as expected.

Key Result Highlights YoY, REDTONE’s 1Q14 revenue jumped by 18% to RM36.1m, mainly driven by the strong contribution from its data segment (+97% to RM22.4m) that was led by its RM82.5m government project as well as higher data and application revenue contribution. Based on our estimate, the group has recognized about 40% of its government project in 1Q14 (FY13:~20%). The group’s PBT, meanwhile, soared 147% to RM4.7m, thanks to the cost synergies created post divestment of non-core and lossmaking businesses as well as from the higher data revenue. The strong growth rate, however, was partially offset by a tax deduction (instead of tax refund in the previous financial year) thus bringing its NP to advance by 82% to RM3.6m.

 QoQ, the turnover lower by 17% as a result of the lower data segment revenue mainly due to a high-base effect arising from the one-off spectrum sharing fee from Maxis recorded in the previous preceding quarter. The group’s EBIT was also lower by 78% to RM4.7m as a result of lower-margin data project recognition.

 The group’s cash & bank balances continued to grow and stood at RM38.8m while its total borrowing stood at RM8.1m in 1Q14, implying a net cash per share of 6.2 sen. Its reserve, meanwhile, increased to RM66.6m from end-FY13 of RM59.3m.

Outlook  REDTONE’s short-to-mid term catalysts rely mainly on its RM82.5m government project as well as the synergistic benefits that could be created under the NSA agreement with Maxis.

 Meanwhile, any successful conclusion of its recent projects biddings (i.e. DTTB project) would be the next key catalysts. Should its 49%-stake owned REDTONE Network S/B managed to secure the project, we believe there is a likelihood for the latter to seek for public funding in the near-term and unlock REDTONE’s shareholder value.

Change to Forecasts No change in our FY14-FY15 earnings forecast.

Rating Maintained OUTPERFORM

Valuation  We are maintaining our target price at RM0.81 based on unchanged FY14 targeted PER of 14.5x (+0.5SD)

Risks to Our Call Dependency on a sole major partner – Maxis.

 Failure to secure more government contracts.

Source/Extract/Excerpts/来源/转贴/摘录: Kenanga-Research,
Publish date: 31/10/13

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