We  deem  TDC’s  9M13  results  broadly  in  line  as  opex  pressure  is expected to  ease in 4Q13 while the recognition of  part of the remaining MYR4.2m from a  non-recurring node fiberisation contract  should boost earnings.  We  remain  NEUTRAL  as  we  think  the  stock lacks  catalysts,while contributions from its upcoming Asia Pacific Gateway cable will likely only materialise in 2015.

• Within  expectations.  Time  dotCom’s  (TDC’s)  9M13  core  PBT  of MYR70.8m (+55.3% y-o-y), which  excludes dividend income from DiGi (DIGI  MK,  SELL,  FV:  MYR4.10),  was  broadly  within  expectations, accounting for 69% and 73% of  our and consensus  full-year estimates respectively. We expect 4Q13 to be stronger when opex pressures e ase, as the  unspecified costs  on festoon cable repair works and  a  MYR0.4m allowance for doubtful debts incurred in 3Q13 are unlikely to recur. There is  also  MYR4.2m  arising  from  a  non-recurring  node  fiberisation  (NF) contract  due  to  be  recognised  in  4Q13  and  partly  in  1Q14  owing  to timing issues.
• Flat revenue growth.  Revenue  dipped  1.6% q-o-q  in 3Q13,  mainly due to  the  company’s  inability  to  recognise  the  MYR4.2m  balance  on  its MYR17.0m  non-recurring  NF  contract.  It  had  booked  MYR12.8m  in revenue from the contract in 1H13.
• EBITDA  margin  improves.  3Q’s  EBITDA  margin  fell  5.0  ppt  q-o-q  to 32.9%,  mainly  due  to  opex  pressure  as  mentioned  earlier,  and  the absence  of  contributions  from  the  non-recurring  NF  contract.  Taxation was minimal due to tax credits arising from accumulated losses.
• Risks.  The risks  are: i)  a  sharper-than-expected decline in  international bandwidth prices, and ii) stiffer domestic competition.
• Forecasts. We maintain our forecasts on the company.
• Investment case.  Maintain NEUTRAL  on TDC, with  our  FV unchanged at  MYR3.95.  While  we  like  it  as  a  direct  play  to  strong  demand  for international bandwidth, we think the stock lacks catalysts in the absence of  M&As  to  enhance  its  regional  presence.  Also,  its  valuation  is  partly attributable  to  DiGi,  which  accounts  for  25%  of  TDCs  SOP  valuation, which we think lacks catalysts, barring the setting up of its business trust.

Financial Exhibits

SWOT Analysis

• TDC diversified into the international submarine cable business in 2012 after acquiring a 10% stake in the Unity cable (Japan-US link)

Company Profile
Time dotCom Berhad (TdC) is the second-largest fixed-line player in Malaysia. TdC also operates in the international submarine cable and regional bandwidth businesses.

Recommendation Chart

Source: RHB