Friday, October 12, 2012

Redtone- a promising data & broadband play

Background

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.

Valuation

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)

Conclusion

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.

Note:
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.

3 comments:

melt said...
This comment has been removed by the author.
melt said...

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

Alex Lu said...

Hi melt,

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