This article first appeared in The Edge Financial Daily on August 28, 2019
TIME dotCom Bhd
(Aug 27, RM8.90)
Maintain buy with an unchanged target price of RM10.30: TIME dotCom Bhd (TIME) remains a preferred exposure to Malaysian telecommunications companies for its superior earnings growth, regional footprint and management/operational execution. Its jewels are its infrastructure assets (subsea/terrestrial cables and data centres) which, in our view, remain underappreciated. Improving demand-supply dynamics for bandwidth sales, rising demand for cloud services/data centres, and National Fiberisation and Connectivity Plan projects/initiatives are key earnings catalysts. Downside risks include margin and earnings weakness.
We expect TIME’s second quarter of financial year 2019 (2QFY19) revenue to grow 2% to 4% quarter-on-quarter and 12% to 15% year-on-year (y-o-y), driven by growth of the fibre broadband (retail) segment and improved bandwidth sales. Its earnings before interest, taxes, depreciation and amortisation margin should remain relatively steady, supported by cost efficiencies and the retail business gaining scale. The management is targeting one million fibre premises passed by end-FY20, from over 650,000 to date — which suggests there is significant room for retail revenue to further scale up. The government’s commitment to improve broadband connectivity and the liberalisation of infrastructure access is positive for TIME. We project an FY19 to FY21 group revenue compound annual growth rate of 12.2%, underpinned by the retail, data centre and wholesale segments.
Exponential growth in Internet data traffic/consumption would directly benefit TIME’s regional wholesale business. The group’s extensive subsea cable infrastructure and, more specifically, unparalleled connectivity across Indo-China (via its direct presence in Vietnam, Cambodia and Thailand) make it well positioned to capitalise on the digital transformation wave across the region. TIME is also a key beneficiary of the proliferation of over-the-top companies which ride on the strong penchant for mobile content by consumers. Wholesale revenue grew 16% y-o-y for FY18 and 20% y-o-y for 1QFY19 (excluding one-off indefeasible rights of use sales).
TIME’s date centre, AIMS, is the leading carrier-neutral data centre in Malaysia and the anchor site for the Malaysia Internet Exchange. AIMS offers a complete suite of cloud solutions with direct connections to leading cloud service providers, such as Google, Amazon Web Services (AWS), Microsoft Azure and Alibaba. As a direct-connect partner of AWS in the region, customers utilising TIME’s cloud interconnect platform are able to connect privately between AWS and data centres, customer premises or a co-location environment. This leads to lower network cost, increased bandwidth throughput and a more consistent network experience. — RHB Research Institute, Aug 27