TDC’s 2QFY13 earnings beat  expectations  due  to  better-than-expected EBITDA margins. Operationally, data growth (excluding a non-recurring contract)  was  still  decent  at  4%.  We  will  likely  raise  our  earnings forecasts  following  the company’s conference  call  later  this  morning. Still,  we  maintain  NEUTRAL  on  TDC  as  we  believe  it  lacks  catalysts  at this juncture.  
 
-  Above  expectations.  Time  dotCom  (TDC)’s  2QFY13  core  PBT  of MYR32.6m  (+5.2%  q-o-q,  +57.3%  y-o-y)  was  above  both  our  and consensus expectations, accounting for  69% and 71% of the respective full-year  estimates.  The  key  variances  were  better-than-expected margins boosted by opex efficiency and revenue from the  non-recurring node  fiberisation  (NF)  contract  worth  MYR4.3m.  The  core  PBT  figure excludes  dividend  income  from  Digi.com  (DIGI;  SELL,  FV:  MYR4.10) and MYR349.4m in exceptional accounting gain.  

- Flat  revenue  growth.  Q-o-q, revenue  growth  was  relatively  flat,  mainly due  to  flat  data  revenue  growth.  In  2Q13,  TDC  recognised  another MYR4.3m  (1Q13:  MYR8.5m)  from  the  MYR17.0m  non-recurring  NF contract.  There  is  a  balance  of  MYR4.2m  to  be  recognised  in  2H13. Voice  revenue  improved  4.1%  q-o-q  in  2Q13  following  a  seasonally weak 1Q affected by public holidays.  

- EBITDA  margin  improves.  2Q13  EBITDA  margin  improved  by  1.1  ppt q-o-q  to  37.9%,  mainly  from  opex  efficiency  and  contributions  from  the non-recurring contract, which we understand commands better margins. Taxation was minimal due to tax credits from accumulated losses.   

- Risks.  The  key  risks  are:  i)  sharper-than-expected  decline  in international bandwidth prices; and ii) stiffer competition domestically.

- Forecasts. Maintained, pending a conference call later this morning.  

- Investment  case.  Maintain  NEUTRAL  on  TDC,  with  an  unchanged  FV of  MYR3.80.  While  we  like  TDC  as  a  direct  play  to  strong  demand  for international  bandwidth,  we  think  the  stock  lacks  catalysts  at  this juncture. Also, its valuation is also partly attributable to DiGi (26% of  its SOP valuation), which we think lacks catalysts barring the setting up of a business trust. 

Source: RHB