TeleChoice International Limited - NRA Capital Research 2017-08-14: More M&A / JVs To Follow

TeleChoice International Limited - NRA Capital Research 2017-08-14: More M&a/jvs To Follow TELECHOICE INTERNATIONAL LTD SGX: T41

TeleChoice International Limited - More More M&A / JVs To Follow


1H FY17 results dragged higher by lower expenses at ICT segment

  • TeleChoice reported a strong set of 1H17 results with revenue growing by 20.5% year-on-year in 2Q17. Consequently, net profit attributable to shareholders (PATMI) rose by 236.4% year-on-year to S$1.71m in 2Q17, bringing 1H17 PATMI to S$2.1m or 23.1% higher year-on-year.
  • The higher profitability was mainly driven by improved profitability at the ICT segment whose losses narrowed from S$1.4m in 1H16 to S$0.9m in 1H17.
  • Revenue growth was mainly driven by higher handset sales following strong demand for Samsung’s latest model.



Higher handset sales led to improved performance at PCS segment

  • The consumer business’s profit before tax grew from S$1.7m in 2Q16 and S$1.3m in 1Q17 to S$1.9m in 2Q17. While revenue growth was driven by higher handset sales, profit before tax margin also improved quarter-on- quarter from 1.6% to 1.7%.


Other StarHub contracts remain unaffected

  • TeleChoice has previously announced that StarHub will not be renewing or extending its Logistics Contract with the company and that the Contract will expire on 30 June 2017.
  • We reiterate that TeleChoice’s other contracts with StarHub remains intact, such as the operation of StarHub stores and the prepaid card master distribution agreement.
  • Overall, we reckon that the 1H17 results will likely be reflective of TeleChoice’s full year performance and adjust FY17F PATMI to S$4.2m. While the loss of the Logistics Contract will have an impact on segment profits, we expect the enterprise business, i.e. network engineering and ICT, to help offset any such impact.


Looking out for news of M&A/JV

  • TeleChoice has been emphasizing on greater regionalisation and deepening service capabilities for some time now. TeleChoice has previously mentioned that it has been exploring a third market for its consumer business. The loss of the StarHub Logistics Contract suggests that TeleChoice now has to act faster to diversify its income sources and reduce reliance on StarHub (which itself is trying to reduce costs amidst potential competition from the fourth telco).
  • The only way to rapidly ramp up its presence in a new market is for the company to acquire and/or form joint ventures with sizeable partners in the region.


Maintaining rating and valuation

  • Despite the lower PATMI forecasts, we are maintaining our rating and valuation, pending review in 2H17 while bearing in mind that the company may do more to grow its PCS business within the next six to 12 months.
  • We highlight that TeleChoice trades at just 12.5x EV/ FY17F EBITDA compared to a P/E of 26.9x FY17 earnings. EBITDA is more reflective of TeleChoice’s cash generating ability with depreciation and amortisation accounting for close to 50% of PBT in 1H17.





Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2017-08-14
SGX Stock Analyst Report OVERWEIGHT Maintain OVERWEIGHT 0.34 Same 0.34



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