Time dotCom: Sharing Out The Yellow Man

THE BUZZ

Last Friday, Time dotCom (TDC) proposed to: i) internally restructure its wholly-owned subsidiary, TT dotCom SB, to consolidate its 3.5% stake (275m shares) in DiGi at the group level, and subsequently, ii) to distribute approximately half of the DiGi shares to its shareholders via a dividend-in-specie, which is equivalent to six DiGi shares for every 25 TDC shares held.

OUR TAKE

Good move. We deem the proposal a wise move on TDC’s part in rewarding its shareholders without being taxed for distributing its 1.8% stake (137.5m shares) in DiGi. Note that the latter’s share price has appreciated by more than 100% over the past four years, and monetising those shares by selling them off for cash would have led to a reduction of shareholders’ wealth as the gain would be taxed. We think that distributing a dividend-in-specie is the best way of maximising this portion of wealth to the benefit of TDC shareholders. However, the group is only looking to give out shares equivalent to a 1.8% stake in DiGi instead of its entire 3.5% stake given the limited distributable reserves in its books.

Core business growth intact. Based on our estimates and assuming an indicative price of RM4.84/DiGi share, TDC’s book value would fall by RM1.16/share upon completion of the above-mentioned proposals, targeted for 1HFY13. As for the impact on its income statement, our earlier projected dividend income to be derived from DiGi would be halved, which would consequently necessitate adjustments to our FY13/FY14 earnings estimates to RM132.2m/RM140.3m from RM166.2m/RM174.7m previously. That said, the growth trajectory of TDC’s core business remains unchanged. We also think that the current share price does not truly reflect the value of TDC’s core business.

Maintain BUY, SOP FV unchanged at RM4.98. Overall, we are pleased that TDC is opting to reduce its reliance on non-core assets to boost its bottom-line going forward. That said, the paring down of its interest in DiGi would prompt a revision to our SOP FV to RM3.77, but we do not see this having a negative impact given that a portion of the group’s value will be returned to shareholders. However, we are keeping our RM4.98 FV for now, pending the approvals of the High Court, Securities Commission and relevant creditors on the proposals. We are reiterating our BUY recommendation on the stock given its attractive valuation. Stripping off the entire 3.5% stake in DiGi would put the value of TDC’s core business at a 7x FY13 PE.

Table 1: TDC’s SOP valuation

Current FV @ RM4.98

Revision to FV post dividend-in-specie

Note: We apply a 20% discount to its domestic peer average of 20x FY13 PER to reflect the lack of dividend from TDC.

Source: OSK Research

Table 2: TDC’s financial projections

Current projection

FYE Dec (RMm)	FY10	FY11	FY12f	FY13f	FY14f
Revenue	321.1	313.9	413.7	532.8	574.5
Core Net Profit	107.1	93.1	146.8	166.2	174.7
% chg y-o-y	72.3	-13.1	57.7	13.2	5.1
Consensus			134.0	159.3	180.0
EPS (sen)	18.7	16.3	25.7	29.0	30.5
DPS (sen)	0.0	0.0	0.0	0.0	0.0
Dividend yield (%)	0.0	0.0	0.0	0.0	0.0
ROE (%)	8.6	5.3	6.6	7.0	6.8
ROA (%)	7.5	4.8	5.7	5.9	5.8
PER (x)	18.7	21.5	13.6	12.0	11.5
BV/share (RM)	2.2	3.1	3.9	4.2	4.5
P/BV (x)	1.6	1.1	0.9	0.8	0.8
EV/EBITDA (x)	20.8	17.4	13.6	9.0	7.6

Revision to projection post dividend-in-specie

FYE Dec (RMm)	FY10	FY11	FY12f	FY13f	FY14f
Revenue	321.1	313.9	413.7	532.8	574.5
Core Net Profit	107.1	93.1	146.8	132.2	140.3
% chg y-o-y	72.3	-13.1	57.7	-9.9	6.1
Consensus			134.0	159.3	180.0
EPS (sen)	18.7	16.3	25.7	23.1	24.5
DPS (sen)	0.0	0.0	0.0	0.0	0.0
Dividend yield (%)	0.0	0.0	0.0	0.0	0.0
ROE (%)	8.6	5.3	6.6	8.0	7.8
ROA (%)	7.5	4.8	5.7	6.3	6.2
PER (x)	12.5	14.4	9.1	10.1	9.5
BV/share (RM)	2.2	3.1	3.9	2.9	3.1
P/BV (x)	1.1	0.8	0.6	0.8	0.7
EV/EBITDA (x)	13.1	11.0	8.8	5.6	4.6

Source: OSK