TIME DOTCOM BHD

Target price: RM7.90

TIME Dotcom reported first quarter earnings of RM 53mil a 16% increase year-on-year (yoy), accounting for circa 23% of Alliance DBS’ and consensus full-year forecasts.

“With strong momentum in the retail segment and commencement of the Asia-Africa - Europe 1 submarine cable system soon, we expect Time’s earnings to remain strong for the rest of 2017,” the research house said.

Revenue grew 25% yoy in the quarter, of which recurring revenue actually increased by 13% yoy, driven by strong growth in data, especially from the retail segment (+108% yoy).

One-off IRU (indefeasible rights-of-use) sales and non-recurring contract revenues of RM25mil were recognised in 1Q17 (vs RM4mil in 1Q16) which largely came from maiden capacity sales on the Asia Pacific Gateway (APG) submarine cable system.

Time grew its retail segment by 70% and 108% yoy in FY16 and the first quarter of 2017, respectively, due to increased demand for its Fibre Home Broadband services, albeit from a low base.

Alliance DBS noted that coverage expansion remains key priority in 2017 where the company intends to add 100,000 new premises to its existing coverage of 300,000 premises passed.

The research house maintained its hold rating with a target price of RM7.90.

“Our RM7.90 target price for Time is based on the discounted cash flow valuation – assuming 8.4% weighted average cost of capital and 2.5% terminal growth (given that the bulk of sales come from the data business with a small portion coming from the legacy voice business),” it said.

Alliance DBS noted that the stock is now trading at a 20.1 times FY18 price to earnings ratio, which it thinks is fairly valued.