Friday, October 12, 2012

Redtone- a promising data & broadband play


Redtone International Bhd ('Redtone') is involved in the provision of specialized broadband, data & managed network services to government, corporate and SME clients. In FY31/5/2012, Redtone has divested its three loss-making non-core businesses- Redtone Multimedia, Redtone Softwarre & Redtone Mobile- and repositioned itself in the data & broadband services.

Recent Financial Results

For FYE31/3/2012, Redtone returned to profitability with a net profit of RM2.5 million while revenue was RM107 million. A big part of that recovery was due to the deconsolidation gain of RM3.4 million arising from the divestment of its 80%-stake in Redtone Multimedia, which is involved in the provision of internet television. I have not tabulated the last 8 quarters' results because the performance of the company going forward will be substantially different from the past performance. For details of the results for FYE31/5/2012, go here.

Future Performance

Inet Research has prepared a report incorporating the latest Redtone's network sharing & alliance agreement with Maxis on its 2600 Mhz spectrum which is expected to drive its earning in 2013 onwards. The report gives a projected net profit for FY2013 & FY2014 of RM20.0 million & RM24.4 million, respectively. This translates to an EPS for FY2013 & FY2014 of 4.3 & 5.1 sen, respectively. For more, go here.


Inet Research valued Redtone at RM0.43 based on 5.5 times the forward FY2013 EV/Ebitda.

Technical Outlook

Redtone has formed a broad base in the past 5 years. An upside breakout of the resistance at either RM0.37 or RM0.40 could signal the beginning of the upleg for this stock (see Chart 2).

Chart 2: Redtone's weekily chart as at Oct 12, 2012_10.00am (Source: Quickcharts)

From the monthly chart (Chart 3), we can see that Redtone has broken above its long-term downtrend line, RR in 2011. If it can break above the resistance at RM0.37/0.40, the stock could begin its upleg. The 4 SMA lines have all reversed upward, indicating the underlying bullish tone for the stock.

Chart 3: Redtone's monthly chart as at Oct 11, 2012 (Source: Quickcharts)


Based on the restructuring undertaken by Redtone and the potential bullish reversal, Redtone is definitely a stock worth close tracking. An upside breakout of the last hurdle (at RM0.40) could be the trigger for the upleg for the stock.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Redtone.


melt said...
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melt said...

Hi Alex,
Why is the redtone PE so high ?
I thought stock with pe the lower the better ?

Alex Lu said...

Hi melt,

Historical PE is not an useful guide in the case of Redtone. Its business has changed significantly.