TIME’s 1H23 core net profit of RM206.1mn was below ours and consensus expectations, accounting for 42.2% and 44.3% of full year estimates respectively. This underperformance was due to lower-than-expected contribution from data, voice and cloud segment. EBITDA margin was lower by 14.2 ppts, impacted by higher net opex in 1H23. We anticipate sustained growth in TIME's data products, supported by a favourable outlook for embracing connectivity via the internet for daily usage. Maintain our BUY call with lower DCF-derived TP of RM6.09 (WACC: 6.4%; g: 1.0%)

• Below expectations. 1HFY23 net profit of RM206.1mn (YoY: +9.2%) was below ours and consensus expectations accounting for 42.2% and 44.3% of full year estimates respectively. The underperformance was due to lower-than-expected contribution from data, voice and cloud segment.

• Dividend. The group declared a Special Interim Dividend of 16.25 sen per ordinary share (totalling RM300mn), bringing cumulative 1HFY23 DPS to 70.2 sen (versus 16.3sen in 1HFY23) - which is equivalent to a DY of 12.9% based on current market price. We are estimating a total FYE23 DPS of 74 sen, which would result in a yield of 13.6%.

• QoQ. TIME’s 2QFY23 revenue increased by 5.6%. However, the group’s core net profit declined by 8.1% QoQ. This decline was attributed by (i) one-off expenses of RM26.1mn related to the AIMS transaction, (ii) higher depreciation and amortization of property, plant, and equipment, and (iii) right-of-use assets of RM6.3mn due to a change in estimates for the useful life of certain categories of telecommunication network assets.

• YoY. The top-line and bottom-line increased by 8.5% YoY and 9.2% YoY, respectively, attributed to the growth in recurring revenue, primarily driven by retail customers, followed by enterprise and wholesale customers. Segment-wise, the data business saw a YoY increase of 12.8%, while other segments, namely voice (down by 8.7% YoY), cloud and other services (decreased by 10.1% YoY), and other segments (contracted by 34.3% YoY), experienced declines. The EBITDA margin decreased by 14.2 ppts due to higher net opex (up by 36.9% YoY) in 1H23.

• Outlook. We anticipate that TIME's data product will continue to grow, backed by a positive outlook for embracing connectivity via the internet for daily usage (individual and business). Looking ahead, we expect data and data center contributions to remain substantial due to TIME's ongoing initiatives to expand its data center operations across Asia. However, potential downside risks to our assessment arise from intense competition posed by other service providers in terms of network coverage and the array of services they offer, that could impact TIME's business segments

• Forecast: We have lowered our FY23-FY25F earnings forecasts by 9.0%/ 11.8%/14.3% YoY to RM445mn/RM485mn/RM531mn respectively, to account for lower growth assumptions in the data, cloud, and voice segments.

• Our call. Maintain a BUY call on TIME with a lower TP of RM6.09 (WACC: 6.4%; g: 1.0%) vs. RM6.65 previously, following our earnings downgrade.

Source: BIMB Securities Research - 21 Aug 2023