Time dotCom Bhd
(April 10, RM8.70)
Reiterate buy with an unchanged target price (TP) of RM10.28: Growing year after year, Time dotCom Bhd’s financial year 2016 (FY16) ended with record-high core earnings, and there was no sign of slack. With all segments still in expansionary mode, we expect FY17 to be another all-time high with its turnover and core profit after tax and minority interests growing 25% and 23% respectively. Time dotCom is our top pick in the telcommunications (telco) sector.  

Its wholesale division’s FY16 revenue was flat with a mere 1% year-on-year (y-o-y) gain due to limited capacity available for sale. With faster and much-delayed Asia-Pasific gateway (APG) submarine cables ready for service (RFS) in June and October 2016 respectively, growth was resuscitated, whereby the fourth quarter of FY16’s (4QFY16) growth was upped robustly by 24% quarter-on-quarter and 28% y-o-y.

Based on our last check, Asia-Africa-Europe 1 (AAE-1) submarine cable sytem is on schedule and expected to be RFS by mid-2017. Recall that AAE-1 is a 25,000km cable with access to 17 countries. Besides capacity, routes from this upcoming cable offer new opportunities to further monetise Time dotCom’s fixed telco assets.

As such, we strongly believe wholesale will continue to chart new heights.

Its enterprise division’s revenue expanded 17% y-o-y in FY16, primarily anchored by the data centre business (+24% y-o-y). Data in this market segment is also projected to increase healthily, supported by strong demand as corporates further embrace digitalisation to enhance their competitive advantage and improve efficiency. 

For the data centre business, AIMS had been recording uninterrupted double-digit growth since consolidation, elevating its contribution to 12% of Time dotCom’s overall revenue. Leveraging on its state-of-the-art Menara AIMS facility in Kuala Lumpur, Time dotCom has a niche in the market. With an additional 10,000-sq ft (+18%) floor space expansion completed in 4QFY16, bringing the total to 65,000 sq ft, its FY17 is geared for another solid performance.

Its retail division recorded a remarkable growth (+70% y-o-y) in FY16, from a low base.

Catalysts include exponential global demand for high-quality data bandwidth, long-term evolution node fiberisation and co-location, cloud computing and virtualisation driving higher demand for data centres.

Risks include irrational wholesale pricing and competition, regulatory risks and contraction in demand for wholesale bandwidth.

As more undersea cables are RFS, its wholesale division is poised to return with a strong growth trajectory underpinning its Asean ambition. Its retail division is gaining momentum on the back of reach expansion and undisputable high-value products. Also, its data centre business is expanding resiliently as information technology outsourcing, cloud computing and virtualisation gain wide adoption.

We reiterate our “buy” call with an unchanged sum-of-parts-derived TP of RM10.28. — Hong Leong Investment Bank Research, April 10