Highest Returns to Shareholders over three years: TELECOMMUNICATIONS & MEDIA: Time dotCom Bhd - Sole player with rising share price

This article first appeared in The Edge Malaysia Weekly, on September 30, 2019 - October 06, 2019.
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In an increasingly challenging telecoms landscape, Time dotCom Bhd stands out in terms of the returns it has delivered over the past three financial years.

If a shareholder had bought the stock on March 31, 2016, and exited on March 31, 2019, they would have obtained an average return of 9.2% per annum over three years.

It is an outstanding performance compared with that of its peers; all four of them — Telekom Malaysia Bhd, Axiata Group,

Axiata Group Bhd, Maxis Bhd and Digi.Com Bhd — saw regressing share prices in that time frame. In terms of total returns, only Digi.Com yielded a positive figure of 1.7% three-year CAGR.

Underlying the returns is the company’s strong financial performance despite intensifying competition in the saturating Malaysian market.

It must be noted, however, that Time dotCom’s business model is more insulated compared with that of its peers, as it focuses on fixed-line telecommunication products, such as data and voice, and international bandwidth provision, which includes the submarine cable and data centre businesses.

In comparison, its peers are in more competitive segments such as wireless cellular service, which has seen margins eroding substantially in recent years.

Time dotCom’s turnover improved in the period under review, from RM682.36 million in the financial year ended Dec 31, 2015 (FY2015) to a record high of RM1.02 billion in FY2018, at a compound annual growth rate (CAGR) of 14.24%.

Meanwhile, profit after tax also grew from RM191.35 million in FY2015 to RM309.46 million in FY2018, at a CAGR of 17.38% (figures are based on the previous reporting regime prior to MFRS-15 adoption).

Driving the momentum is, among others, strong sales growth from its data and data centre segments, both of which clocked double-digit growth annually between FY2016 and FY2018.

Data, in particular, is the key revenue driver for Time dotCom, contributing about three-quarters of its annual turnover.

While the Malaysian home market remains its core earnings source, accounting for more than 96% of revenue in FY2018, the company has also ventured abroad to diversify its revenue stream.

In FY2017, it acquired 46.84% equity interest in public listed Thai telecommunication network and service provider Symphony Communication PCL. In the following financial year, it established an operating presence in Japan and Cambodia, according to its latest annual report.

However, it is still early days for the overseas diversification, given that ex-Malaysia revenue in FY2018 came to just RM35.65 million or about 3.62% of total turnover.

Even so, return on equity (ROE) grew a third from 9% in FY2015 to 12% in FY2018. Earnings per share improved from 33.55 sen to 53.13 sen in the same period.

The stock closed at RM9.13 on Aug 30, which gives the company a market capitalisation of RM5.35 billion. Up to that point, the counter had risen by 12.7% since the beginning of 2019.

And there may yet be upside. On Aug 28, RHB Research reiterated its “buy” call with a target price of RM10.90 for the stock, implying nearly 20% in upside potential still on the table.

The reiteration followed a record first-half performance that saw Time dotCom’s earnings before interest, taxes, depreciation and amortisation margins “scaling new [heights]”, says RHB Research. Analyst estimates tracked by Bloomberg forecast revenue of RM1.1 billion and a net profit of RM320.9 million for the full FY2019.

RHB Research is one of six research houses with a “buy” rating on the counter, with target prices ranging from RM10 to RM10.90. Another research house has a “hold” rating, with a 12-month target price of RM8.90.

“Time dotCom remains a sector top pick due to its superior growth profile, regional footprint, and management/operational execution. Key risks are margin weakness and higher-than-expected capex,” says RHB Research.