TIMECOM (FV RM0.87 - BUY) Company Update: Up, up And Away

Stock Name: TIMECOM
Company Name: TIME DOTCOM BHD

Research House: OSK

Price Call: BUY

Target Price: 0.87

We lower  our FY12/13core profit forecast by 14%/1% after moderating our assumptions to reflect the higher  opex  related to the  tie-up  with Astro and incorporating  strongerwholesale revenue growth. The  companywill wrap up its acquisition of 3 related businesses by mid-2012, which will beEPS accretive from the outset. This will potentially boost our FY13 EPS by 35%,all else being equal. We raise our FV to RM0.87 as we roll over to FY13. Thekey re-rating catalysts are:(i) stronger than expected results going forward,and (ii) improved earnings from the acquirees. Given the more than 10% upsidefrom current levels, we upgrade TDC to a BUY.

 A terrific turnaround hands down. SinceCEO Afzal Abdul Rahim took charge, TDC had undertaken a  major 'cleansing', which seems to have  helped boost its earnings. Nonetheless, thesurge in bottomline was also bolstered by the company's stellar topline performance.Last year alone, TDC's recurring revenue jumped 13% y-o-y, with all of its businesssegments clocking  in strong financialfigures: (i) wholesale: +14% y-o-y, (ii) corporate & government: +12%y-o-y, and (iii) consumer & SME: +9% y-o-y. More notably, its operatingprofit spiked up 3-fold from RM18.7m to RM49.4m.

New recurring revenuestreams start flowing. The company's acquisition of 3 related companies wasinitially scheduled to be completed by February but is now slated to be wrappedup by 1H2012 due to delays in obtaining the required approvals from the High Courtand regulators. Nonetheless, we see low risk of the deal falling through giventhat the multiple proposals were approved by shareholders at the EGM last year.We expect the company to chalk up a core earnings CAGR of 35% over the next twoyears with the inclusion of the acquirees.

Upgrade to BUY,FV  RM0.87.  We are revising upward our FY12/FY13 revenue forecastsby 2%/4% to RM338.4m/RM373.7m on incorporating stronger growth from the wholesalesegment. However, our FY12/FY13 core earnings estimates are trimmed by 14%/1%to RM88.6m/RM118.2m as a result of: (i) the high installation cost frontloaded fromthe rollout of Astro IPTV services (assuming a cost 12x of ARPU at RM100), and (ii)adjustments to our earlier forecast recurring expenses. Since our previous fairvalue (FV) of RM0.80 was computed based on FY12 numbers,  they did not reflect TDC's growth potential given the  high opex incurredduring the early days of the Astro IPTV rollout. Thus, we are rolling over oursum-of-parts (SOP) valuation to FY13, from which we derive a FV of RM0.87. Weare now upgrading the stock to a BUY. At the  current price, consensus isonly valuing the company at 9.3x FY13 PER based on the income purely generatedby TDC.

Source: OSK188