• NEUTRAL, new DCF-based TP of MYR5.60 from MYR5.90, 8% upside with c.4% FY24F yield. Time dotCom’s 1Q24 results are in line, with all business segments charting double-digit YoY revenue growth. A stronger growth narrative is being sought by the market, with the retail segment facing renewed competitive pressure while the wholesale business is growing on an even keel. Its FY25F EV/EBITDA is fair and in line with the historical mean.

• In line. TDC’s 1Q24 core PATAMI of MYR107.3 (+8% QoQ, -0.6% YoY) made up 24% of our full-year forecast (consensus: 23%), with QoQ seasonality observed. All key revenue segments posted double-digit YoY growth, with enterprise growing at 15%, followed by FBB (+13%) and wholesale (+12%) while the EBITDA margin held steady at 42%. Associate contributions were at a new quarterly high (+46%), with the data centre (DC) business, ie AIMS, contributing c.23% of the pie.

• Kabel Besar upgrades as competition tightens. TDC rolled out selected speed upgrades for its fibre packages in late March, followed by a wholesale upgrade in April which saw its entry-level package bumped up to 200Mbps (MYR129/mth). The speed upgrade is to align with competition and drives customer retention, with mobile peers aggressively upselling/cross-selling FBB-mobile bundles. With group capex centred on the expansion of its fibre footprint (~1.6m premises pass), we still see good growth opportunities for the FBB business – albeit at higher customer acquisition premiums.

• AIMS DC Block 2 (B2) seeing good off-takes; B3 in the works. B2 utilisation has reached optimal levels, less than 12 months after it was commissioned. The construction of B3 (12.5MW/60,000sq ft) is slated for an accelerated completion timeline of 2Q25. With the adoption of liquid cooling technology, B3 should offer higher yields per rack, with greater computing power.

• Forecasts tempered. While TDC is still able to leverage on the promising DC prospects without having to incur hefty capex, a stronger growth narrative is needed, in our view. Management was candid in its comments at the results call, highlighting more investments should be ploughed into expanding fibre across the region, while the EV charge point business that it invested in will not be moving the needle. Given its MYR1.3bn war chest, opportunistic M&As should not be ruled out, in our view. We lower FY25-26F core earnings by 3-5% after factoring in stronger competition for the FBB business.

• Key upside risks are stronger-than-expected earnings and margins, and higher-than-expected dividends. The opposite of these would constitute downside risks. TDC will look to disclose Scope 1-3 emissions from 2024 onwards, although disclosure requirements allow for the exclusion of associates. Our TP has incorporated a 0% ESG premium.

Source: RHB Research - 30 May 2024