Stock Name: TIMECOM
Company Name: TIME DOTCOM BHD
Company Name: TIME DOTCOM BHD
| Research House: OSK | Price Call: BUY | Target Price: 0.87 |
We hosted a briefing by the senior management team of Timedotcom (TDC) for 15 institutional investors. TDC was represented by its CEO, CFO and Head of Investor Relations. Mostquestions zoomed in on its regional wholesale business acquisitions which areon track for completion by 2H2012. TDC sees tremendous growth for intra-ASEANbandwidth demand given the area's small broadband penetration of just 6%. Management is guiding for a 15% growthin operational earnings over the longer term and alluded to the 60% uplift inTDC's EBITDA if the acquisitions were completed in FY11. We maintain our BUYrating based on an unchanged FV ofRM0.87. Key rerating catalysts include the completion of the regionalacquisitions and stronger-than-expected earnings from the enlarged entity.
Sustainabledouble-digit growth in the longer term. Management does not expect its stellarFY11 operating profit growth (which more than doubled) from its recurring operations (excluding the dividend income from Digi) to repeat. Instead, it foresees a moresustainable 15% growth in core profit over the longer term on the back ofmid-teen revenue growth for the wholesale, corporate/government andconsumer/SME segments. That said, we expect TDC's earnings to be crimped in FY12 by: (i) the upfront cost booked forthe roll out of broadband/IPTV services in partnership with Astro, and (ii) higherdepreciation charges. We have assumed a 5% take-up of the service based on 167kpremises passed by end-2012, ARPU of RM100 and device subsidy of RM1,200.
Rising demand forintra-regional bandwidth. TDC's role as a 'toll collector' for mobile operatorsand international carriers in procuring bandwidth should augur well for thegroup, especially with the injection of the 2 related wholesale assets (GlobalTransit Ltd. and Global Transit Communications) by 2H2012. We expect demand forbandwidth to grow in line with consumers getting more Internet-savvy and risingusage requirements, coupled with the introduction of LTE. Indochina's broadbandpenetration of less than 10% suggests strong upside potential for TDC, as theenlarged entity would have access to an expansive regional fiber footprint withconnectivity that extends from Asia to the US.
Strong earningsuplift expected from regional assets. We gather from management that GTC,GTL and the AIMS Group posted a combined EBITDA of RM63m for FY11 vs RM30m inFY10. Based on our calculations, the companies would have contributed a core profit of RM45m to TDC earnings in FY11. Extrapolating the numbers and assuming a flatgrowth for FY13, our calculationsindicate that the 3 assets were acquired at an attractive PER of just 7x. Note that our forecast has yet to factor in contributions from these assets.
Source: AmeSecurities
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