Telechoice International - Larger presence in Malaysia drives profit turnaround

Background

Telechoice (TIL) is a portfolio company of ST Telemedia (STT), which invests in innovative information and communications technology businesses globally. 

TIL covers three segments in the infocomm technology sector: 1) Distribution of mobile devices and lifestyle products in Singapore and Malaysia. 2) Info-communications technology (ICT) service; and 3) network engineering services (Engineering). 

It manages selected retail and concept stores of Starhub, SAMSUNG and HONOR in Singapore, and distributes StarHub’s prepaid cards. 

In Malaysia, it is the fourth-party logistics (4PL) service provider for U Mobile. STT has a 50.8% stake. Another 18.6% is held by Leap International, a family office.

Return to pre-tax profit in 1H24

1H24 turned around to pretax profit of S$0.4m (FY23: pretax loss S$10.8m), mainly led by the U Mobile contract which commenced in Feb 2024 and brand managed services for HONOR products from June 2023. Network engineering services also turned profitable with more contract completions in Indonesia.

A bigger presence in Malaysia

In price-sensitive developing markets, telcos and handset makers often tie up to offer incentives to acquire and retain customers, and to move them from lower-end plans to higher-tier ones. 

Telcos are also consolidating their retail channels to focus on the bigger players who have the resources to understand consumer preference and market dynamics, which provide useful data for them to plan sales initiatives.

Malaysia’s smartphone market is projected to grow by 9.5% yoy, to reach 9.8m units in 2024, according to Canalys. 

Samsung and the Chinese brands dominate the market. Demand is fuelled by greater 5G adoption, and proliferation of affordable 5G devices. If Malaysia award a second 5G licence, wider 5G coverage could accelerate demand for handset upgrade. 

Stronger handset replacement demand

The smartphone market is recovering. According to Canalys, global smartphone shipments grew 5% yoy to 310m units in 3Q24. 

This is the fourth consecutive quarter of increase after 3 years of decline. The recovery is underpinned by improved emerging economies, introduction of AI-enabled devices, and higher thrust by the mass-market Chinese brands. The Chinese brands garner 32% of the global market.

The handset replacement cycle is poised to rise at a faster rate, underpinned by pent-up demand, introduction of AI-enabled devices, and Singapore government’s push for smart nation programs and digital transformation.

Gaining a toehold in data centres

Indonesia is the major market for the engineering division, where it focuses on upgrading optical network and offer Fiber-To-The-Home services for mobile network operators. 

Besides telcos, TIL also performs engineering work for data centres. Some of its clients are the banks and energy providers.

The rise of AI has significantly lifted demand for data centres, leading to capacity expansion at existing facilities and new constructions. 

TIL is well-positioned to ride on the data centre wave. It could also leverage on STT’s extensive data centre portfolio. STT GDC owns more than 95 data centres across 11 countries.

A growing pie for ICT

The ICT sector stands to benefit from Singapore’s push to advance digital transformation. 

Together with deeper implementation of AI technology, this could spawn new demand for ICT services from non-traditional sources and expand the industry pie.

Valuation

TCL is trading at 1.1x price-to-book and FY24 annualised EV/EBITDA of 8.7x. 

The nearest comparable SGX-listed peers are Digilife Technologies and Nera Telecommunications. Digilife Technologies distributes and retails mobile devices for Telkomsel in Indonesia. Nera Telecommunications provides ICT and engineering services in ASEAN markets.

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