• Stay BUY and MYR5 TP (DCF), 10% upside, 5.3% yield. Results were in line with a pleasant surprise coming from a special dividend. Stock valuation remains undemanding, at -1.5SD below the historical EV/EBITDA mean, supported by superior earnings growth, net cash balance sheet, and solid management execution. Time dotCom remains one of our preferred sector picks with a parity ESG score built into our TP, in line with the country median.

• Dividend ahoy. 2Q22 core earnings narrowed 7% sequentially as EBITDA growth was clipped by a higher tax expense. This brought 1H22 core earnings to MYR186.4m (+8.2% YoY) at 44-45% of our and consensus estimates, within historical run-rates. The board has rewarded shareholders with an interim special DPS declared of 16.34 sen (MYR300.1m) to be paid on 27 Sep. A special DPS was also announced in the previous FY.

• Recurring revenue (ex-one-off revenue) was up 11% in 1H22, with data and data centre (DC) recurring growth up 12% and 13%.

• Blistering retail growth. Retail (fibre broadband) remains the fastest- growing segment, up 25% YoY (+5% QoQ) in 1H22 with >1.2m premises connected. While its bigger peer is seeing some normalisation of demand – with growth reverting to pre-pandemic levels – TDC’s growth appears to have been well supported with a growing base of customers upgrading to higher-speed plans.

• Wholesale and enterprise revenues were steady QoQ. Wholesale revenue was up for the second quarter in a row on a YoY basis.

• Magic Box (AIMS@CJ) hitting the right notes. DC revenue rebounded (+0.7% QoQ, +12% YTD). We see a progressive ramp-up of the business going into FY23. Management said it has received very good enquiries for the next 20,000sq ft extension, which it expects to be ready for service or RFS by end 2023. We expect contributions from the DC segment to progressively ramp up over the next few quarters. TDC was non-committal on media reports of a potential sale of its DC assets. We are not surprised that expressions of interests have been received for the assets, given its long track record and captive customer base – especially with heightened interest in the DC space regionally.

• We maintain our BUY call and DCF-based MYR5 TP. We ascribe a 0% ESG premium or discount, as TDC’s ESG score is on par with the country median.

• Key risks are retail competition, and weaker-than-expected earnings and wholesale revenue.

Source: RHB Research - 30 Aug 2022