• TimedotCom (TDC) 4Q17 core PBT recovered strongly, up 34% qoq and 2% yoy boosted by IRU worth RM18.1m and strong Data and retail revenues.

• Overall FY17, core PBT grew 10% to RM215m just 2% shy of our estimates which we deem as being in-line.

• We made minor changes to FY18/19 forecasts on housekeeping changes. TDC’s long-term prospects which offer exposure to the regional demand in bandwidth remains intact, in our view.

• TDC’s share price trailed KLCI on concerns over lower IRU sales and a strengthening ringgit. We believe concerns are well priced in; upgrade to BUY on lower TP of RM9.70 (from RM9.80).

Strong qoq recovery boosts FY17

TDC’s 4Q17 core PBT rebounded strongly aided by combination of one-off IRU sales of RM18.1m and stronger contribution from data and data centre revenues. The former was aided by the strong retail revenue growth (+20% qoq, +70% yoy) as volume grew while ARPU remained steady. Core earnings grew 35% qoq also aided by lower effective tax rate. Overall, FY17 core earnings were 5% ahead of our estimates (3% over consensus) at RM206m, which we deem as inline.

Weaker yoy core earnings but expect this to be sustainable

Over yoy period, TDC’s 4Q17 earnings were down 2% but only due to positive tax charge in 4Q16. Core pretax improved 3% yoy despite lower IRU sales (4Q16 IRU: RM28.1m) as we think the retail segment saw improved economies of scale.

Key highlights from conference call

Management continue to guide for weaker IRU sales going forward as corporate sought for direct-leasing model. It also noted that FY17 performance is a good reflection of earnings sans one-off IRUs. Stable ARPUs for the retail segment despite competition from other home broadband providers offers a strong indicator of improving operating scale. The MFRS 15 introduction from FY18 onwards would ‘improve’ earnings as customer acquisition costs are charged over the contract tenure instead of the current practice where it is expensed upfront.

Minor housekeeping

We tweaked FY18/19 estimates by +0.9%/-1.4% on better economies of scale for the retail segment and lower IRU sales in FY19.

Upgrade to BUY with new TP of RM9.70

Upgrade to BUY with lower TP of RM9.70 (from RM9.80) which is based on the DCF methodology (WACC of 7.4% and 3% LT growth rate). We view its long term outlook remains intact as growing demand for data are expected to underpin bandwidth demand albeit rising competition could impact earnings in the near term.

Source: BIMB Securities Research - 27 Feb 2018