REDtone affected by delays in Time 3 extension project

12 Oct REDtone affected by delays in Time 3 extension project

REDtone International Bhd (RIB) reported a profit after tax and minority interests (Patami) of RM538,000 in the first quarter of financial year 2016 (1QFY16), which merely accounted for 1.8% of our former full-year net profit estimate of RM30.5 million.

We note that RIB has changed its financial year-end to April (from May previously). Thus, 1QFY16 only recognised a two-month earnings contribution.

The disappointing 1QFY16 was mainly due to the Time 3 (T3) extension project deferment (for the third consecutive quarter) as well as higher operating expenses, on the back of steeper payroll costs, advertising expenses and foreign currency losses.

No dividend was declared for the quarter.

No comparable financial numbers were provided by the management as the group had changed its financial year-end to April. Nevertheless, for illustrative purposes, we have split the former quarters into two months for the sake of comparison.

Year-on-year, 1QFY16 revenue grew relatively flattish at 1% to RM23 million as a result of another deferment of the T3 extension project, which led to its data segment’s revenue climbing merely 13% to RM12.6 million, but largely offset by lower voice (down 2% to RM10.4 million) and other segment revenues (including sale of telecommunication software, goods and installation charges).

Its Patami, meanwhile, plunged 82% to RM500,000 as a result of a lower gross profit margin, coupled with higher operating expenditure (opex) as well as higher foreign-currency losses (RM340,000 versus RM70,000 a year ago).

Quarter-on-quarter, turnover improved by 8% as a result of better data segment’s revenue contribution. Its Patami, however, returned to a profit of RM500,000 versus -RM1 million in the preceding quarter, which was mainly caused by higher opex (which included employee share ownership scheme-related costs and foreign-currency losses).

There is a likelihood that the group may face another challenging quarter in 2QFY16, as there was no solid progress in its T3 extension project in August and September. Nevertheless, the management remains hopeful to resume the project in October as it has been reviewed by the new authorities.

Meanwhile, the management is planning to resume the transfer of listing (to Bursa Malaysia’s Main Market) in FY16, following the release of its FY15 audited accounts.

On top of that, we also understand that the group and its parent company, Berjaya Corp Bhd, are evaluating some proposals, which we believe could involve U Mobile Sdn Bhd. The market earlier speculated that some corporate exercises could be in the making, given the common shareholders between RIB and U Mobile.

Post results, we have slashed our FY16 estimated revenue/net profit by 12.5%/23% to RM173 million/RM23.5 million to reflect the latest universal service provision projects’ implementation timeline post deferment, coupled with higher interest costs as a result of higher currency volatility.

We have lowered our fair value to 61 sen (from 71 sen previously), based on a targeted FY16 price-earnings ratio (PER) of 16.8 times (a 25% discount to the big-cap telco’s FY16 PER, in line with its three-year historical 25% to 30% discount range).

 

Source: The Edge

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