TIME’s 1Q18 core net profit of RM71m (+13% QoQ; +28% YoY) was a positive surprise thanks improved cost discipline. Despite the absence of non-recurring contracts and IRU sales, top line was chiefly driven by data and data centre’s organic growths. Going forward, TIME sees great opportunities in domestic retail market and regional networks. Maintain our projections for now pending briefing. Reiterate BUY with unchanged TP of RM10.04.

Above expectations: 1Q18 revenue of RM231m was translated into a core net profit of RM71m (pre-MFRS 15), accounting for 30% of HLIB and consensus full year forecasts, respectively. The better-than-expected performance was attributable to improved cost structure.

Dividend: None (1Q17: none).

QoQ: Top line declined by 1% due to the absence of non-recurring contracts and IRU sales. However, recurring revenue gained healthily at 4% despite the seasonality. Yet, core net profit expanded 13% aided by (1) improved cost efficiencies; (2) lower depreciation; (3) higher contributions from associates; and (4) MFRS 15 adjustments.

YoY: Turnover grew 6% even though in the absence of non-recurring contracts and IRU sales. Excluding that, recurring revenue increased strongly by 16% mainly driven by data and data centre. In turn, core PATAMI strengthened 28% to RM71m for the same reasons outlined above.

MFRS 15: Effective 1 Jan and the impact was positive. The adoption lifted revenue and PAT by 1% and 12% respectively.

Segmental performance: Data and data centre expanded 8% and 10% YoY, respectively and more than sufficient to offset the 22% YoY decline in voice. Data’s grow is very promising with minimal boost from high-margin non-recurring revenue.

Outlook: TIME expects the industry to remain competitive and challenging. However, it is encouraged by the strong demand exhibited by its home fibre products and will tap further into this segment. On the regional front, it plans to work with its associates in Thailand and Vietnam to integrate their respective networks with parent’s network in Malaysia and Singapore to create a seamless regional network. It will also look to expand its data centre presence regionally and grow its current ecosystem of customers to included interconnected players from various industries.

Forecast: Maintain pending analyst briefing today. Reiterate BUY based on unchanged SOP-derived TP of RM10.04. We like TIME as its retail is gaining momentum on the back of reach expansion and undisputable high value products. Also, data centre is expanding resiliently as IT outsourcing, cloud computing and virtualization gain wide adoption. IRU is no longer a drag and expected to perform better as demand recovers.

Source: Hong Leong Investment Bank Research - 1 Jun 2018