Tuesday 22 May 2012

Time dotCom (TDC MK, BUY, FV: RM4.40, Last Price: RM2.90)


We are turning more bullish with Time dotCom (TDC) as it morphs into a regional player. We are revising upwards our FY12/FY13 core PBT forecasts by 43%/40% to RM126.4m/RM164.8m on: (i) including financial  contribution from the acquired companies, and (ii) revising  estimated  dividend income  from DiGi.  All in,  we derive a new sum-of-parts (SOP) FV of RM4.40  vs  RM4.25 previously. Maintain BUY, as we continue to like the stock’s defensive earnings and cheap valuation.

Healthy contributions from  newly-acquired companies. Following the conference call with management yesterday, we are turning more  bullish on the stock. Firstly, we understand that if the financials of the acquired companies were consolidated with TDC‟s for FY11, its headlin revenue, EBITDA and PBT would have  risen to RM450m (+43%), RM180m (+45%) and RM150m (+26%) respectively. We also gather that even after the issuance of 65.9m new TDC shares to fund the acquisitions, the enlarged entity would still have been in an EPS accretive position in FY11.

Huge appetite  for fibre. One of the more apparent synergetic offerings from the acquisition of Global Transit entities (GTE) would be the strategic location of its fibre optic cable networks, whereby TDC‟s Cross Peninsular Cable System (CPCS) serves as the missing link between Thailand  and Singapore,  with  GTE providing TDC with a regional and global fibre presence. Based on our findings, Thailand only has two routes connecting the US, either via (i) multiple connectivity from Malaysia-Singapore-JapanUS, or (ii) utilizing the Asia-America Gateway submarine fibre cable system directly from Thailand to US. We think TDC‟s role as “toll keeper” for procuring bandwidth will grow in importance  in the  years  ahead  given  that  the  usage of  mobile data in Thailand is beginning to pick up. Currently, as internet traffic from Indochina (broadband penetration of less than 10%) is routed via Thailand to the US, the traffic from both countries should increase going forward, which will benefit TDC further.

Even hungrier for data. As for the inclusion of AIMS data centers, we see strong recurring revenue from this business, which  will  provide TDC with  an entirely new income stream. For the foreseeable future, we see cloud computing gaining in popularity and benefiting data centers as service providers would look to park their data obligations with providers such as AIMS. However, we estimate that AIMS currently has 28k sq ft of net floor space, which is almost fully utilized. Management is aware of this  and is actively looking for areas for expansion.

Source: OSK 

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