What’s New

• 4Q16 adjusted pretax of RM60m above expectations; further boosted by tax writebacks

• Declared 10.7sen special DPS and 6.6sen interim DPS

• Raise FY17-18F EPS by 3-8%

• Maintain HOLD with higher TP of RM7.9

Maintain HOLD. We maintain our HOLD call on TIME dotCom Bhd (TIME) with a higher TP of RM7.90. The stock has generally outperformed its Malaysian telco peers due to its better growth prospects and capital management initiatives. The stock is now trading at 21.3x FY17 PE, which we think is fairly valued. Stronger-than-expected global bandwidth sales once its major submarine cable systems (i.e. APG, FASTER and AAE-1) start operations could be a re-rating catalyst.

Regional expansion. After increasing its stake in early 2016, TIME now owns a 45% stake in CMC Telecommunication Infrastructure Corporation (CMC Telecom). Similar to TIME, CMC Telecom is a fixed-line operator in Vietnam, mainly focusing on providing broadband services for businesses and home users. TIME has also spent a total of c.RM10m to acquire a 49% stake in KIRZ Co. Ltd., a carrier-neutral data centre operator based in Thailand.

Valuation

Our RM7.90 TP for TIME is based on DCF-valuation assuming 8.4% WACC and 2.5% terminal growth (given that sales are predominantly from data business and less legacy voice business).

Key Risks to Our View

Steeper decline in bandwidth prices. Steeper-than-expected decline in bandwidth prices and/or slowdown in data demand will be an earnings risk for TIME's bandwidth business.

Source: Alliance Research - 1 Mar 2017