Exciting developments in the pipeline - REDTONE

by **Cals** Tue 16 Jul 2013, 10:14

Exciting developments in the pipeline
Business & Markets 2013
Written by Kenanga IB Research
Tuesday, 16 July 2013 09:44

REDTONE INTERNATIONAL BHD []
(July 15, 72 sen)
Maintain outperform at 69 sen with a revised target price of 77 sen (from 75 sen): REDtone submitted a detailed digital terrestrial television broadcast (DTTB) business plan to the Malaysian Communications and Multimedia Commission (MCMC) on June 3 for final evaluation. The MCMC is expected to conclude the bidding process and name the winner by the end of the third quarter of this year.

To recap, REDtone Network Sdn Bhd, Puncak Semangat Sdn Bhd and i-Media Broadcasting Solutions Sdn Bhd were shortlisted by MCMC for the DTTB tender last November. The winner will provide the platform for free-to-air broadcasters to migrate from the current analogue system to a digital broadcasting format. Based on our understanding, the successful bidder will receive a block of spectrum capable of providing up to 45 standard definition or 15 high definition channels.

In mid-June, REDtone launched a dedicated business broadband service designed specifically for small and medium enterprises (SMEs).

The service, called Redtone Fibre+, comes in four packages starting at RM199 a month for 5 Mbps to RM999 for 30 Mbps. Redtone Fibre+ rides on TELEKOM MALAYSIA BHD []'s nationwide high speed broadband (HSBB) network.

By riding on TM's HSBB network, REDtone is able to provide more value-added services as well as complete TECHNOLOGY [] solutions (including wireless point to point, 3G, WiMAX, 4G, satellite, WiFi, Metro E and ADSL) to its SME customers.

The group had on July 3 this year incorporated a 70% owned subsidiary, REDtone MEX Sdn Bhd (RMSB) with the intention to provide tele-health services as its principal activity.

The remaining 30% of the equity interest in RMSB is owned by People Health Sdn Bhd. Tele-health or tele-medicine involves the use of proprietary software and electronic devices with audio and visual capabilities to assist in the provision of medical care to patients.

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No details or financial numbers were provided by the management given the set-up of the joint venture company is still in the preliminary stage.

Its 2013 financial year (FY13) results may come in above our expectation as a result of the higher than expected margins, thanks to better network efficiency as well as cost synergies created from various collaborations. We have, thus, raised our FY13-FY14 gross profit (GP) margin assumptions by another 100 basis points each to 42.4% and 41.5% respectively.

The higher GP margin assumptions have also led us to raise the group's net profit forecast to RM25.5 million in FY13 and RM26.5 million in FY14 (from RM23.6 million and RM25 million previously).

Meanwhile, the group's FY13 dividend per share forecast has also been raised to 1.6 sen (from 1.5 sen previously) based on an unchanged 30% targeted payout ratio.

Note that REDtone has a formal dividend policy to distribute a minimum 25% of its net profit to reward shareholders. — Kenanga IB Research, July 15

This article first appeared in The Edge Financial Daily, on July 16, 2013.