We hosted a briefing by the senior management team of Time
dotcom (TDC) for 15 institutional investors.
TDC was represented by its CEO, CFO and Head of Investor Relations. Most
questions zoomed in on its regional wholesale business acquisitions which are
on track for completion by 2H2012. TDC sees tremendous growth for intra-ASEAN
bandwidth demand given the area’s small
broadband penetration of just 6%. Management is guiding for a 15% growth
in operational earnings over the longer term and alluded to the 60% uplift in
TDC’s EBITDA if the acquisitions were completed in FY11. We maintain our BUY
rating based on an unchanged FV of
RM0.87. Key rerating catalysts include the completion of the regional
acquisitions and stronger-than-expected earnings from the enlarged entity.
Sustainable
double-digit growth in the longer term. Management does not expect its stellar
FY11 operating profit growth (which more than doubled) from its recurring operations (excluding the
dividend income from Digi) to repeat. Instead, it foresees a more
sustainable 15% growth in core profit over the longer term on the back of
mid-teen revenue growth for the wholesale, corporate/government and
consumer/SME segments. That said, we expect
TDC‟s earnings to be crimped in FY12 by: (i) the upfront cost booked for
the roll out of broadband/IPTV services in partnership with Astro, and (ii) higher
depreciation charges. We have assumed a 5% take-up of the service based on 167k
premises passed by end-2012, ARPU of RM100 and device subsidy of RM1,200.
Rising demand for
intra-regional bandwidth. TDC‟s role as a “toll collector” for mobile operators
and international carriers in procuring bandwidth should augur well for the
group, especially with the injection of the 2 related wholesale assets (Global
Transit Ltd. and Global Transit Communications) by 2H2012. We expect demand for
bandwidth to grow in line with consumers getting more Internet-savvy and rising
usage requirements, coupled with the introduction of LTE. Indochina‟s broadband
penetration of less than 10% suggests strong upside potential for TDC, as the
enlarged entity would have access to an expansive regional fiber footprint with
connectivity that extends from Asia to the US.
Strong earnings
uplift 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 in
FY10. 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 flat
growth for FY13, our calculations
indicate 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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