We believe Time dotCom (TdC) should see continued high growth in its underlying operations, underpinned by its domestic Wholesale business and rising sales in the Unity cable. Management has regional expansion initiatives planned, possibly done inorganically. Besides that, TdC remains on track to complete the proposed dividend-in-specie exercise by June, after receiving shareholders’ approval. Maintain BUY.

- Positive outlook. Management expects domestic data (driven mainly by its domestic Wholesale segment) to continue to grow steadily, as higher demand is expected from mobile operators with the introduction of LTE (Long Term Evolution) services. The rollout of LTE services opens up another revenue opportunity to TdC in the form of node fiberisation installation contracts. While management guided that it is non-recurring, we believe it is possible TdC may procure more of such contracts albeit possibly on a lumpy basis as the mobile operators continue to fiberize their backhaul for LTE services.

- Unity cable. On its global bandwidth business, management expects sales to gain momentum. So far, management has sold slightly under half of the 800Gbps (Giga bits per second) capacity on the Unity cable. In comparison, as at end-March, about one-third of capacity was sold.

- Asia Pacific Gateway (APG) cable. According to management, the APG cable is on track for completion by end-2014. This, we believe, is important for TdC to capture the high traffic growth on the intra-Asian submarine cable systems, which may rise roughly 40% annually over the next few years, according to TeleGeography.

- Regional ambitions. Management has regional expansion initiatives planned, and hinted it may be done inorganically. With an undergeared balance sheet, we believe funding is not an issue. Management has identified Thailand, Indonesia and Philippines as countries with potential. 

- Investment case. Maintain BUY on TdC with unchanged fair value of MYR4.95. We still peg an unchanged target PER multiple of 13.4x to TdC’s core (excluding DiGi’s dividends) FY13 EPS of 17.5 sen plus the value of the current 275m DiGi shares held (valued at MYR5.10/share). We like TdC for its high earnings growth potential against a backdrop of increasing demand for bandwidth capacity in Asia Pacific

Source: RHB