Time dotCom hits all-time high
SHARES of fixed-line telecommunication company, Time dotCom Bhd, hit an all-time high of RM9.90 on Aug 30.
The stock, which has a market cap of RM5.7bil, is up by close to 30% since the start of the year. Ironically, this euphoria comes at a time when some analysts are less bullish on the stock, seeing no new catalysts in sight, for the short term at least. Maybank IB Research, whose report was issued two days before Time’s price peaked, says the stock is trading close to peak valuation and at a premium to peers.
“We think Time’s growth prospects have largely been priced-in,” the report stats.
Time’s share price was then at RM9.60 and the research firm’s 12-month target was RM8.90. Credit Suisse, on the other hand, reckons that Time will continue to grow and has raised its target price by 40 sen to RM10.60. At current levels, Time’s stock is trading at a historical price earnings (PE) multiple of 22.11 times. Its forward PE ratio stands at 25.65 times.
Of the eight analysts covering the stock, there are equal number of buys and holds, Bloomberg data showes. Earlier on Monday, Time announced a below than expected results for the second quarter ended June 30 (Q2’17) due to a drop in indefeasible rights of use or IRU sales and the presence of foreign exchange losses as the US dollar weakened.
Its net profit came in at RM36mil, down by 32% year-on-year (y-o-y) and 15% quarter-on-quarter (q-o-q) bringing first half FY17 (H1’17) core net profit to RM89mil. No dividend was declared the quarter. To be fair, IRU sales are volatile on a quarterly basis, while the company is a net US dollar beneficiary, points out Maybank IB Research. IRUs are long-term leases or temporary ownership of a portion of the capacity of an international cable, usually fibre-optics cables such as the ones Time owns and operates. Besides, international bandwidth provision that includes submarine cable and data centre business, the company also offers services such as data and voice.
According to Maybank IB Research, the low IRU Q2’17 sales means H1’17 data revenue is currently trending below its expectations. Even so, the research firm says it is relatively unperturbed by this going by the continued strong growth momentum of its retail product and the potential resumption of IRU sales in (H2’17, given the impending commissioning of the AAE-1 cable. (AAE-1 is a high-capacity cable system linking Asia and Europe via the Middle East).
Elsewhere, Time’s data centre business has been trending slightly ahead of expectations, with revenue growing 27% y-o-y in H1’17, due to increased utilisation of the recently-expanded KL site, the research firm says.
It notes that Time’s Asean expansion plan is taking shape, and its easing capex schedule would mean greater leeway for management to pursue more M&A opportunities.
“Nevertheless, with the stock trading close to peak valuation we think Time’s growth prospects have largely been priced-in,” Maybank IB says. On the outlook for the second half, Credit Suisse says that based on its conference call with the company, management’s tone was slightly more neutral.
“While management is proud of its yearto-date results, it highlighted that market conditions have been slightly challenging in recent times. Therefore, its tone was slightly more neutral compared to the previous quarter.” Among the key highlights that came out of the conference call was that Time indicated that customers, mainly OTTs, are adopting a ‘wait and see approach’.
This means that deal flows have been slow, but it hopes to do better. The company also hopes to take delivery of AAE-1 by end of the year. As for the wholesale segment, it is now a challenging business as market dynamics are no longer the same. It hopes to maintain revenues at these levels, notes Credit Suisse. “Enterprise and retail segments continue to be the growth engine where it plans to expand premises passed (FTTO and FTTH) to circa 450,000 by end 2017 from circa 300,000 today.” In the Q2’17, Time’s retail grew 15% q-o-q and 91% y-o-y, while enterprise segment chalked up 6% q-o-q and 13% yoy growth driven by its attractive bundles. On the company’s proposed acquisition of a 37% stake in Thailand’s Symphony Communication Public Company Ltd, the process is on-going with management hoping to complete the deal by end of the year. The acquisition of a stake in Symphony would be its third overseas buy in recent years, reinforcing the company’s plans to expand into Asean countries.