We came out of Time’s briefing feeling optimistic about its future growth prospects. Upgrade to BUY with a revised TP of MYR7.80 (from MYR6.75, 12% upside). Time’s growth prospects remain strong, driven by the resilient demand for data centres and given that it is a direct beneficiary of the stronger USD. The commissioning of its three new cables and more regional M&As are also catalysts for future growth.

Data centre growth to remain resilient. Time dotCom’s (Time) management believes that there are still pockets of opportunities for growth in the data centre (DC) segment, currently contributing about 12% to revenue and management expects this segment to still grow in the double-digit region next year due to the resilient demand. As such, Time will be looking to build a new DC in Cyberjaya on a 3-acre plot of land, with construction due to start sometime in 2016. Its current DC in Menara AIMS is operating at almost full capacity. The construction cost of at least MYR100m will be part of Time’s capex allocation for 2016-2017. This should help to buoy overall growth, especially for its enterprise business, as management expects growth prospects for its wholesale business to be less exciting going forward.

Other growth prospects. Time’s three new submarine cables, ie the Asia-Pacific Gateway (APG), FASTER, and Asia-Africa-Europe 1 (AAE-1), are on track for commissioning in FY16 and FY17. Note that for 9M15, Time recorded about MYR6m of pre-sales for APG. The company also continues to seek for other expansion opportunities within the ASEAN region. Its investment into Kirz Co Ltd, a small Thai telco player, will provide Time with a platform to enter the Thai fixed line market.

Earnings forecast. We lift our FY15-16 net profit forecasts by 18-19% respectively to build in the impact of the extended weakness in the MYR on its USD-denominated global bandwidth business and higher data center revenues going forward.

Upgrade to BUY. Our TP is revised to MYR7.80 (from MYR6.75) after our earnings revision and ascribing a lower WACC of 9.2% (10%) due to stronger growth prospects vs its peers. given the resilient demand for data and data centres and as Time will continue to be a direct beneficiary of the weaker MYR. Its FY16 EV/EBITDA of 7.8x is still at a large discount to sector peers’ EV / EBITDA of between 9x to 14x.

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Financial Exhibits

SWOT Analysis

Company Profile

Time dotCom is the second-largest fixed-line player in Malaysia. It is also involved in the international submarine cable and regional bandwidth business.

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Source: RHB Research - 30 Nov 2015