Monday 21 May 2012

TIMECOM (TDC MK, BUY, FV: Under Review, Last Price: RM2.71)


THE BUZZ
Last Friday, Time dotCom (TDC) reported its 1QFY12 financial results and its core operating profit  (sans the  dividend contribution from DiGi) came in line with our expectations but was below  that of  consensus, making up 26% and  16% of the respective full-year forecasts. However, if we were to include the dividend income, core earnings before tax would beat our estimates by  constituting 34% of our full-year forecast and would be in line with consensus.

OUR TAKE
All business segments grew y-o-y. During  1QFY12, TDC saw its sequential top-line declining marginally by 2% to RM81.3 mainly owing to seasonal factors. However, on a y-o-y basis, it grew by some 16% given the stronger contribution across all its business segments, including: (i) wholesale: +18% y-o-y, (ii) corporate & government: +13% y-oy, and (iii) consumer & SME: +22% y-o-y.

Slight compression in EBITDA margin. As expected, TDC’s EBITDA margin declined to 29% (1QFY11: 32%, 4QFY11: 33%), no thanks by the high installation cost that was frontloaded from the rollout of Astro IPTV services. Again, we wish to emphasize that the recognition of revenue from this product will be on a recurring basis and it is expected to achieve EBITDA breakeven for a typical customer with an ARPU of RM100 after 12-15 months. Thus, its EBITDA margin would gradually improve and normalize going forward since all the lumpy expenditures have been frontloaded. On the other hand, its quarterly earnings before tax grew 16% q-o-q (+29% y-o-y) to RM29.6m, lifted by DiGi’s generous dividend income of RM19.4m.

Financial contribution from acquirees will  come in from June onwards. Upon completing of the capital repayment and capital restructuring exercises, TDC was finally able to acquire the related companies, including Global Transit entities and AIMS group, on 17 May to transform itself into a regional wholesale service provider.

Maintain BUY, forecasts and FV under review. We are waiting for the analyst conference call later today to obtain a clearer picture on the outlook of the acquires before making any changes to our forecasts.  In the meantime, we put our fair value under review.  Note that  since TDC saw a recent  sell down in its share price, the company appears to be trading very cheaply at less than 5x FY12/FY13 PER  (after stripping away its 3.5% stake in DiGi) even before taking into consideration the acquired companies. Currently, DiGi makes up 78% of TDC’s market value.

Source: OSK 

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