• Keep NEUTRAL and MYR5.10 DCF TP (9% upside), c.5% FY25F yield. Time dotCom’s results were broadly in line with operating numbers skewed by FX. While the retail fibre business remains a core driver, growth is levelling off from base effects and possible challenges securing permits. Absence of a clear longer-term growth narrative continues to weigh on stock sentiment.

• Broadly in line. 3Q24 core earnings (adjusted for FX effects) of MYR112m (+6.3% QoQ, +8.1% YoY) brought 9M24 core earnings to MYR324.4m (+10.4% YoY), at 73% of our forecast, albeit trailing consensus at 69%. Core earnings were bolstered by a one-off deferred tax asset booked (MYR7.6m) from the earlier divestment of AIMS Group (data centre business).

• Unrealised FX loss skews operating numbers. 3Q24 unrealised FX loss of MYR69m (YTD: MYR71m) contributed to the 15% decline in EBITDA margin QoQ. On a core basis, EBITDA was steady QoQ, reflecting good cost controls with customer acquisition cost trending down for the second consecutive quarter. 4Q operational numbers should improve as MYR strength tapers off.

• Retail segment growth easing; cloud and solutions revenue still exhibiting double-digit YoY decline. Wholesale growth is routine. Retail/fibre broadband (FBB) growth, whilst still decent at 10% YoY, is levelling off due to base effects. Management highlighted that the retail fibre business is generating stable ARPU despite stiff FBB competition, with network quality and service as key differentiators. FBB premises passed edged higher to 1.73m (2Q24: 1.67m). Meanwhile, cloud and other solution revenue (AVM Cloud) continued to post double-digit declines, likely due to the shift in demand by enterprises for private cloud from public cloud where revenues are recurring in nature. We note associate contribution has expanded nicely, more than doubling QOQ, largely driven by AIMS (30%-owned).

• Full-year capex to trend lower at c.MYR300m (vs MYR400m guided previously). YTD capex of MYR221m is dominated by the expansion of its domestic fibre footprint (c.MYR176m). While TDC is prepared to expand its fibre footprint aggressively, securing permits for the rollout looks to be a challenge, especially with single dwelling units forming a key component of its network expansion plans.

• Outlook. TDC lacks meaningful re-rating catalysts in the absence of a clear long-term growth narrative, in our view. There is scope for further capital management (ie special dividends) given its significantly under-levered balance sheet, and in the absence of value-accretive inorganic pursuits.Risks: Stronger/weaker-than-expected earnings and/or margins, and higher/lowerthan-expected capex. Our TP includes a 2% ESG discount.

Source: RHB Securities Research - 28 Nov 2024