TDC in regional expansion mode
Time dotCom seeks more investments in the region
PETALING JAYA: Slowly but surely, Time dotCom Bhd (TDC) is building its base in the region by buying up fixed-line companies.
Combined with its own investments in several undersea cable networks that run right into the United States, TDC will control a part of the regional traffic, although these are early days.
On Tuesday, it announced a second investment into Thailand, its third in the region, and will continue to scout for more in the region.
Both the Thai investments when combined are said to be bigger than TDC’s Malaysian operations. It also has a 45.27% stake in CMC Telekom, a broadband player in Vietnam.
“Our strategy is to slowly take infrastructure assets in the region and use our operational experience to improve their growth and profitability. That is the same thing we did in Vietnam,” TDC’s commander-in-chief Afzal Abdul Rahim (pic) said in a reply to queries from StarBiz.
He added that “there is potential growth in profit” as the company expands into new markets.
On Tuesday, TDC announced a proposal to buy 37% of Thailand’s Symphony Communication for RM137mil. The deal is expected to be completed by the third quarter of the year, and upon TDC’s entry, Symphony plans to undertake a rights issue to raise about one billion baht. With the portion of the rights, TDC’s stake in Symphony will stand at 49%.
“All in, we estimate that TDC could spend up to RM265mil on Symphony for an eventual 49% stake, which would just about exhaust its net cash at end-2017,” said Maybank Investment Bank Bhd (Maybank IB) in a note.
TDC expects the earnings contribution from Symphony to trickle in by year-end.
According to some analysts’ reports, Symphony is one of many fixed-line operators with a fibre footprint around the Bangkok region. It offers premium highspeed data communication network services to mostly wholesale customers, using optical fibre cable for its core network.
Symphony offers Internet access, private networks, international private leased circuits (IPLC) to four neighbouring countries and with point of presence in Singapore and Hong Kong, digital broadcast, local loop for IPLC, and access network.
TDC also owns 49% in Kirz, a smaller fixed broadband player in Thailand. Kirz also has a stake in the Malaysia-Cambodia-Thailand submarine cable, currently under construction.
Hong Leong Investment Bank said it was positive on the purchase, as Thailand offered great fixed broadband growth prospects due to its low household penetration rate, and has maintained a “buy” call on the stock.
“Besides knowledge transfer to Symphony, there are huge synergies that can be extracted, including product cross/up-selling and offering end-to-end solutions. There is minimal business conflict or cannibalisation between Symphony and TDC’s 49%-owned Kirz due to different market segments, as Symphony is in wholesale while KIRZ in end-user,” the house said.
The house expects exponential global demand for high-quality data bandwidth, co-location, cloud computing and virtualisation driving higher demand for data centres. However, it also pointed out several risk factors, such as irrational wholesale pricing and competition, regulatory risks and contraction in demand for wholesale bandwidth.
Maybank IB added that Symphony specialised in the wholesale segment and was profitable, but the earnings uplift to TDC was not immediately significant. It estimates a 37% stake in Symphony would have raised TDC’s 2016 net profit by 2%.
For 2016, the net share of profit from CMC and Kirz was about RM3mil and TDC expects better contribution for this year. The net book value of CMC and Kriz is about RM111mil.
Maybank will maintain its forecast and target price of RM8.90 a share until the deal is completed. TDC shares remained unchanged in yesterday’s trading at RM8.60 a share.