Time dotCom (TDC MK, BUY, FV: RM0.87, Last Price: RM0.69)

THE BUZZ

Last Friday, Time dotCom (TDC) announced that the High Court of Malaya had granted the approval for its proposals to: (i) make a capital repayment of RM0.02/share via the cancellation of part of its share premium, (ii) set off its share premium against accumulated losses via  the  capital reduction of 2,530.8m shares from RM1.00 to RM0.10, and (iii) consolidate 2,530.8m shares of RM0.10 each into 506.2m shares of RM0.50 a piece, pursuant to Sections 60 and 64 of the Companies Act, 1965.

OUR TAKE

On track to become a regional wholesale service provider. We view the approval by the High Court positively,  in the run-up to the much-anticipated acquisition of Global Transit  entities and AIMS Group. With their inclusion into TDC’s current business structure, which is slated to be completed by 2HFY12, we  expect  the new enlarged entity to leverage on each other’s strengths to provide a more holistic one-stop solution to their wholesale customers since the enlarged group would have an extensive regional footprint with connectivity from Asia all the way to the US.

1QFY12 results to be in line with estimates. On the upcoming 1QFY12 financial performance, there should not be any surprises as we expect it to be in line with our estimates given that we had already factored in a higher depreciation assumption and some contribution from Astro IPTV services based on a 5% take-up rate on the targeted 167k premises to be fiberized by end of the year.

Maintain BUY recommendation at RM0.87. We think that with the multiple proposals in the pipeline, there may be a rerating of the stock, especially when the operations of the acquirees are consolidated together with TDC’s later during the year. We continue to like the stock as we think it is still pretty much undervalued at less than 10x FY13 PER, after stripping  out the 3.5% stake in DiGi (NEUTRAL, FV: RM4.00) along with its dividend contribution to TDC’s bottom line. We are reiterating our BUY recommendation on the company at a fair value (FV) of RM0.87 based on a sum-of-the-parts valuation. Note that our current FV has not incorporated  earnings from  the  soon-to-be acquired companies nor any corporate exercises.

Source: OSK188