Thursday January 24, 2013

REDtone to focus on complete solutions


PETALING JAYA: REDtone International Bhd will focus on delivering complete solutions as part of its growth strategy.

Managing director Datuk Wei Chuan Beng said to this end, the company targeted organisations which may require the use of multiple technologies such as fibre, wireless, point-to-point, satellite, or a combination of 3G and 4G networks.

The organisation would typically have a need for a high capacity bandwidth and may require the building of a network operations centre, Wei said.

“With the increase in demand for broadband data, we are very strongly positioned as we are the largest WiFi infrastructure builder,” he said.

The telco service provider has so far established 4,500 WiFi hotspots.

In terms of research and development (R&D), REDtone is exploring opportunities with service providers to use WiFi and provide roaming management software to allow tourists to be connected to the Internet.

“We spent some RM30mil over the last 10 years on R&D. That is how we are able to differentiate our services,” Wei added.

Two developments in REDtone are its universal service provider (USP) business and its 10-year network sharing deal with Maxis Bhd.

In November last year, Malaysian Communications and Multimedia Commission awarded REDtone with an RM82.5mil USP contract to build, operate and maintain radio access network (RAN) infrastructure in nine rural areas in Sabah as part of the Time 3 Programme.

Kenanga Research, which initiated coverage on REDtone yesterday considered the three-year USP contract as a major win for the company, and would be among the drivers of the group's earnings for the next three financial years.

“We understand that approximately RM49.5mil or 60% of the contract value has been allocated to build 75 sites in the nine rural areas while the balance was assigned for maintenance purpose,” it said in a research note.

Analysts estimate that REDtone could potentially generate a 25% to 35% cost synergy as a result of the larger economies of scale. The three-year project will be funded via internally generated funds.

The company also signed an infrastructure and spectrum sharing agreement (NSA agreement) with Maxis to fast track its 4G long-term evolution (LTE) service rollout in Malaysia from 2013 onwards.

Kenanga estimates that Maxis could potentially pay REDtone up to RM25mil for the first resource sharing fee under the NSA agreement.

“We also understand that under the above NSA agreement, both parties will need to pay an unidentified amount to each other when a user subscribes for Maxis or REDtone's 4G LTE services under the combined 2,600 MHz spectrum,” it said.

Currently REDtone has RM100mil in its orderbook, which are contracts that have been secured and are in the midst of implementation.

Meanwhile, the company has a tenderbook of RM500mil. Wei expects the company to achieve some percentage of what it had bid for, given its track record.

On Tuesday, the ACE-market listed company announced its second-quarter financial results for the period ended Nov 30, 2012, with net profit rebounding into the black at RM3.97mil against a loss of RM82,000 a year ago.

The improvement was largely due to the divestment of non-core and loss-making businesses within the group. However, revenue for the quarter fell 25.8% to RM26.68mil from RM35.9mil in the previous corresponding period, attributable to recurring maintenance services during the quarter.

Kenanga tagged REDtone with an “outperform” recommendation with a target price of 56 sen based on targeted financial year ending May 31, 2013 price-earnings ratio of 11 times.

The research house said catalysts for REDtone's future earnings would likely depend on its ability to secure more USP projects and the degree of aggressiveness of Maxis' 4G LTE services rollout.

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