• 1Q18 core earnings rose strongly 13% yoy and 4% qoq to RM64m amidst higher revenues across all segments and better operating efficiencies achieved.

• Against ours and consensus estimates, 1Q18 core earnings were broadly inline at 27%.

• TDC’s share price trailed KLCI on concerns over lower IRU sales and a strong ringgit. However, we believe these concerns have been more than priced in; maintain BUY at TP of RM9.70.

Time dotCom (TDC) adopted the MFRS 15 accounting standards from 1 Jan 2018. As no retrospective adjustments were made, the review is based on pre-MFRS 15 figures for better sense of TDC’s performance.

A strong start

1Q18 core earnings grew 13% yoy due to higher sales from recurring businesses (ie. data and data centre), better operating efficiencies achieved and higher associate contribution. These more than offset lower IRU sales (1Q18: RM4.4m, 1Q17: RM25m) and declining voice revenue. Excluding IRU sale, a one off revenue stream, top line grew 16% yoy to RM225m. 1Q18 core earnings were broadly inline with ours and consensus estimates at 27%.

Qoq growth due to better efficiency achieved

On qoq basis, core earnings rose 4% due to better efficiency and lower depreciation charge. Opex eased on lower 3rd party network costs and interconnect voice, in tandem with declining voice revenue.

Robust revenue driven by retail segment

Within its 3 business segments – wholesale, enterprise and retail – the retail segment continue to record robust revenue growth of 76% yoy and 14% qoq. We believe the retail segment has achieved economies of scale which underpinned the expansion in EBITDA margin to 37.5% (+0.9ppts yoy, +0.8ppts qoq).

MFRS 15 impact

The adoption of the new accounting standard has ‘positive impact’ to TDC’s accounting profits as opex in regards to subscriber acquisition costs (SAC) is now amortised over the contract period. Prior to this, it adopted a conservative approach whereby SAC was charged upfront.

Reiterate BUY with RM9.70 TP

Maintain BUY with a DCF-derived TP of RM9.70 which assumes 7.4% WACC and 3% long-term growth rate. We view its long term outlook remains intact as growing demand for data are expected to underpin bandwidth demand. Its retail product prices are also one of the most competitive in the market which could see limited impact from the government’s initiative to “double internet speed at half the price”.

Source: BIMB Securities Research - 1 Jun 2018