A possible repeat of 2015

Following the disposal of its remaining Digi shares, it is possible that TDC could pay out the proceeds to shareholders via a special dividend. This would likely help to sustain share price at current lofty valuations, in our view. HOLD rating maintained, with a marginally lower MYR7.20 TP.

No Digi shares left

TDC has disposed of its remaining 68.7m Digi shares for MYR307m (priced at MYR4.47/Digi share). This represents c.53sen per TDC share. With management having been proactive with capital management over the years (in particular, there was a similar exercise in 2015), we think TDC is likely to return the entire proceeds to shareholders via a special dividend.

Cleaner financials; ROE boost

The dividend income from TDC’s Digi shares has been substantial relative to the group’s core earnings (28% in FY14 and 13% in FY15), and thus have had an impact on reported P&L and valuation metrics. With its Digi shares now entirely disposed, TDC’s future P&L would reflect only its core operations. If the recent disposal proceeds are indeed returned to shareholders, we estimate TDC’s ROE to climb and eventually sustain at the low-teens level.

Revising target price

We trim FY16-18 earnings forecasts by 2-4% to reflect the substitution of dividend income to interest income. Our TP is lowered marginally to MYR7.20 to reflect the Digi shares disposal (shares were disposed at MYR4.47/share relative to our MYR5.00/share valuation). Our TP is based on a DCF, assuming 8.7% WACC and 2% long-term growth.

Source: Maybank Research - 23 May 2016