• NEUTRAL, new DCF-based TP of MYR5.80 from MYR5.60, 6% upside with a c.12% FY23F dividend yield. Time dotCom has completed the sale of AIMS Group (AIMS) to DigitalBridge (DB). We adjust our FY23-25 forecasts to factor in the deconsolidation, with AIMS reclassified as an associate. The divestment is value-accretive with a hefty premium, albeit likely marginally earnings-dilutive in the medium term, in our view. Our TP now factors in the proceeds from the sale and the special DPS, with a parity ESG score imputed. Key risks: Earnings weakness and retail fibre competition.

• AIMS sale was completed on 20 Apr. TDC has completed the divestment of AIMS to DB, a global digital infrastructure firm with varied investments in infrastructure assets. The transaction, first announced last November, was executive in a timely manner, with heightened interest on telco assets driving significant value accretion (deal was inked at 37x trailing P/E).

• Some concerns on deconsolidation, 54 sen DPS declared. As data centres (DC) are highly sought-after assets, offering a direct play on burgeoning data traffic and accelerated enterprise digitalisation, there are concerns on the deconsolidation of AIMS impacting group earnings in the near term (from subsidiary to associate). The DC segment made up 9-10% of TDC’s core earnings and 20-21% of group revenues for FY21-22 (including contributions from cloud subsidiary, AVM). We tone down FY23-25F earnings by 8-10% to factor in the deconsolidation. We do, however, acknowledge good synergies from scale benefits and the regional footprint that DB brings to the table – which should propel AIMS’ growth over the longer run. Management has declared a 54 sen special DPS from the MYR2bn sale proceeds to be paid on 26 May. Including the special payout, TDC’s FY23F dividend yield is projected at >12% at current levels.

• Retail segment still a key growth driver. At more than 1.3m homes passed (multi-dwelling units), TDC’s share of the fibre broadband market is relatively modest in comparison to Telekom Malaysia (TM) (T MK, BUY, TP: MYR6.20)’s >6m and Maxis (MAXIS MK, NEUTRAL, TP: MYR4.03), which piggybacks on TM’s high speed broadband infrastructure. TDC’s FBB value proposition, however, has been based on a superior customer and network experience, with a 100% full fibre network and attractively priced packages. TDC targets to roll out another 0.2-0.3m new fibre premises in FY23.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 2 May 2023