• Maintain BUY and DCF-derived MYR5.00 TP, 13% upside, with c.3% yield. Time dotCom’s results were line, with double-digit expansions in core earnings and revenue. We continue to see the data centre and retail (fiber broadband) segments as key growth drivers, on the back of robust structural demand and capacity expansion. Stock valuation remains undemanding, at -1.5SD below the historical EV/EBITDA mean, supported by its industry leading earnings growth, net cash balance sheet, and strong management execution. TDC is among our preferred sector picks. Our TP has factored in a parity ESG score, in line with the country median.

• No surprises. 1Q22 core earnings advanced 16% YoY on stronger revenue and core EBITDA, but fell 12.3% QoQ on revenue seasonality. This formed 23% of our/consensus’ estimates, consistent with historical run- rates. Core EBITDA margin narrowed 4% QoQ to 46% (1Q21: 47.3%), reflecting higher opex, with the greater focus on network availability and stability.

• Revenue up 12% YoY. We note recurring wholesale revenue rose 6% YoY (+4% QoQ) – the first growth in four quarters – while enterprise sales lifted 6% (flat QoQ), supported by higher DC utilisation and cloud revenues.

• Retail revenue remains the fastest growing, up 25% YoY (+6% QoQ), supported by the expansion of its fiber footprint (>1.2m premises) and continuing strong adoption of fiber broadband services. TDC said competition in the fixed/fiber broadband (FBB) market remains healthy, with the market in ‘steady state’. It remains committed to add c.0.2m new fiber premises pa under the National Digital Network (JENDELA) programme.

• Data centre (DC) witnessing extended lead times. The response to Phase 1 of the new AIMS DC (60,000 sq ft) in Cyberjaya (commissioned last July) has been overwhelming, with >70% of floor space committed in less than six months. There were, however, lapses in converting the strong pipeline, with customers taking more time to procure and onboard equipment due to supply chain issues. This contributed in part to the 17% QoQ slippage in DC revenue (stronger revenue seasonality was also observed for cloud services under AVM Cloud in 4Q21). Management expects the slack to be made up for in 2H22. TDC is exploring the construction of Phase 2 (next 60,000 sq ft).

• Forecast and risks. Our earnings forecasts are unchanged. We project FY22-24F core earnings CAGR of 17%, with DC as the new leg of growth. Key downside risks are retail fiber competition, and weaker-than-expected earnings/margins and wholesale revenues.

Source: RHB Research - 31 May 2022