TIME’s FY18 core net profit of RM291m (+46% YoY) was a great surprise. Overall outperformance is attributable to (1) strong recurring revenues; (2) improved cost discipline; and (3) higher contributions from associates. Although the new fiber plans may lead to margin compression, we concur that this can be easily cushioned by higher take up rate. Reiterate BUY with SOP-derived TP of RM10.14. Money can’t buy time, but this you can.

Above expectations. FY18 revenue of RM983m translated into a higher-than expected core net profit of RM291m (+46% YoY), accounting for 114% and 118% of HLIB and consensus full year forecasts, respectively. The positive surprise originated from improved efficiency and stronger-than-expected contributions from associates. Declared interim/special dividends of 9.25/11.31 (4Q17: 5.3/11.9) sen per share, both going ex on 15 Mar. FY17 dividend amounted to 20.56 (FY17: 17.2) sen per share, representing 41% payout ratio and yields 2.7%.

QoQ. Top line inched up by 5% mainly driven by stronger recurring revenues (+4%) where data +4%, voice +4% and data centre +1%. By segmental breakdown, all markets grew sequentially, with wholesale +5%, enterprise +3% and retail +3%. At the same time, core net profit gained 12% thanks to higher contributions from associates in Thailand and Vietnam.

YoY. Turnover grew 12% supported by higher contributions from all products, where data +21%, voice +4% and data centre +15%. In turn, core PATAMI strengthened 25% to RM79m aided by improved cost efficiencies and higher contributions from associates.

YTD. Top and bottom lines gained by 14% and 46%, respectively for the same reasons outlined above. In terms of product, data was the major growth driver with 24% gain followed by data centre with 14% expansion, while voice declined 11%.

Segmental performance. Retail spearheaded the group’s YTD growth with 61% gain as it continued to expand fiber footprint, while wholesale and enterprise also registered double-digit growths of 13% and 10%, respectively.

Retail. According to Ookla’s recent Speedtest report, TdC has 237k subscribers and this represents 40% take-up on the back of the targeted 600k premise-pass as end of FY18. TdC hopes to cover up to 1m premises by 2020. It highlighted that the competitively priced new fibre home broadband plans may lead to some initial margin compressions in the coming year but expect this to be cushioned by sales volume.

Regional associates. Both CMC (Vietnam) and Symphony (Thailand) continued to deliver positive earnings YTD more than sufficient to offset KIRZ’s minor loss. TdC is working with its associates and partner in Cambodia in network integration to achieve operational synergies and to create a seamless regional telco network across Indochina, Malaysia and Singapore.

Forecast. Our FY19-20 EPS are raised by +5% and 1%, respectively after adjusting margins, associates’ contributions and dividend payout ratio. Reiterate BUY after lowering our SOP-derived TP slightly to RM10.14 (see Figure #2). 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 Mar 2019