Time’s 1HFY14 results were within expectations as sequential revenue growth  picked  up  strongly  in  2Q  following  a  soft  1Q  due  to  a  timing issue. Management expects EBITDA margin to remain stable, but toned down its medium-term revenue growth  outlook.  We keep our MYR5.20 FV,  but  downgrade  the  stock  to  NEUTRAL  (from  Buy)  as  we  believe most of the recent positive news has been priced in.

Broadly in line. Time dotCom’s (Time ) 1HFY14 core PBT of MYR59.0m (-7.2% y-o-y), excluding dividend income from DiGi (DIGI MK, BUY, FV: MYR6.20),  was  broadly  in  line  at  48%/47%  of  our/consensus  full-year estimates  respectively.  The  company  secured  a  bumper  MYR12.2m worth  of  node-fiberisation  contracts  in  1HFY13  (1HFY14:  MYR3.3m), which  management  indicated  is  unlikely  to  recur.  Excluding  these contracts, 1HFY14 core PBT would have risen 9.6%. 

Briefing highlights.  In the short term,  management  remains  confident of  achieving  stable  EBITDA  margin (1HFY14: 35.1% vs  FY13: 35.2%),but  was  somewhat  guarded  on  its  medium-term  revenue  growthprospects,  having  guided  for  a  more  conservative  10%.  We  think  two factors  underline management’s more cautious tone: i)  less  capacity left for sale on the Unity cable as utilisation increases, and ii) an increasingly higher  revenue  base.  Therefore,  Time’s  recent  entry  into  the  FASTERcable  system  (similar  to  Unity’s  US-Japan  route)  is  timely  and  should provide  support  to  its  FY15  earnings  (via  presales)  upon  being operational  by  2016.  In  the  short  term,  we  believe  lumpy  global bandwidth sales will likely drive the company’s 2HFY14 earnings.

Risks.  The risks are: i) a sharper-than-expected decline in international bandwidth prices, and ii) stiffer domestic competition.

Forecasts. Maintained.

Investment  case.  We  maintain  our  DCF-derived  (WACC  of  7.4%, terminal  growth  of  2%)  FV  of  MYR5.20,  but  downgrade  the  stock  to NEUTRAL (from Buy) given its recent share price rally. We still like  Timeas a direct play to strong demand for international bandwidth, although its share  price has priced in most of the recent positive news. We see M&As  as potential re-rating catalysts that management is still exploring, but there is a lack  of clarity on when this may materialise. 

Source: RHB