KUALA LUMPUR (Aug 30): TIME dotCom Bhd shares climbed more than 6% during early trade on Tuesday (Aug 30), on the heels of a 16.34 sen special dividend, with the company's quarterly earnings coming in line with consensus estimates.
At 10.34am, TIME dotCom was the second top gainer on Bursa Malaysia, after its shares rose 29 sen or 6.36% to RM4.85, translating into a market capitalisation of RM8.91 billion. The counter saw 1.03 million shares traded.
In a note on Tuesday, RHB analyst Jeffrey Tan wrote that TIME dotCom’s earnings for the second quarter ended June 30, 2022 (2QFY22) were in line with consensus expectations, and accompanied by the pleasant surprise of a special dividend.
He noted that TIME dotCom’s 2QFY22 core earnings narrowed 7% sequentially, as earnings before interest, tax, depreciation and amortisation (Ebitda) growth was trimmed by higher tax expense, which brought core earnings for the first half ended June 30, 2022 (1HFY22) up 8.2% to RM186.4 million — at 44% to 45% of the research house’s and consensus estimates, within historical run rates.
“The board has rewarded shareholders with an interim special DPS (dividend per share) of 16.34 sen (totalling RM300.1 million) to be paid on Sept 27. A special DPS was also announced for the previous financial year,” he said. TIME dotCom declared a special dividend of 8.22 sen for 3QFY21.
Commenting on TIME dotCom’s segments, Tan said that retail fibre broadband remains the company’s fastest-growing, with a 25% year-on-year (y-o-y) expansion in 1HFY22 — with over 1.2 million premises connected.
“While its bigger peer is seeing some normalisation of demand — with growth reverting to pre-pandemic levels — TIME dotCom’s growth appears to have been well supported, with a growing base of customers upgrading to higher-speed plans,” he added.
Meanwhile, the RHB analyst said that the company’s data centre revenue rebounded — up 0.7% quarter-on-quarter (q-o-q) and 12% year-to-date — and foresees a progressive ramp-up of the business and its contribution going into FY23.
“The management said it had received very good enquiries for the next 20,000 sq ft extension, which it expects to be ready for service by end-2023,” he noted.
Tan maintained his “buy” call on TIME dotCom, with an unchanged target price (TP) of RM5, ascribing a 0% environmental, social and governance (ESG) premium or discount, as the company's ESG score is on a par with the country’s median.
“TIME dotCom remains one of our preferred sector picks, with a parity ESG score built into our TP, in line with the country's median. Key risks are retail competition, and weaker-than-expected earnings and wholesale revenue,” he said.
However, Hong Leong Investment Bank (HLIB) Research analyst Tan J Young said that while TIME dotCom’s 2QFY22 earnings matched consensus expectations, it came below the research house’s forecast.
“[TIME dotCom’s] 2QFY22 core PAT (profit after tax) of RM93 million (down 5% q-o-q; down 1% y-o-y) brought its 1HFY22 [PAT] to RM192 million (up 7% y-o-y), which came in below our forecast at 44%, but was in line with the consensus at 46%,” he said, adding that the company's earnings missed the research house’s forecast due to a lower-than-expected Ebitda margin.
“One-off adjustments in 1HFY22 included net bad debt recovered (-RM344,000), foreign exchange gain (-RM23 million), the net allowance for doubtful debts (+RM6 million), PPE (property, plant, and equipment) disposal gain (-RM1 million), and PPE written off (+RM1 million),” he added.
Tan said TIME dotCom's revenue grew 9% in 1HFY22, thanks to higher contributions from data and data centre products, which more than offset the contraction in voice.
“In terms of segments, all markets recorded positive trajectories, led by retail, followed by wholesale and enterprise. Regional associates contributed a total of RM11 million (up 8% y-o-y) in 1HFY22,” he added.
The HLIB analyst maintained his “buy” rating of the stock, with a lower TP of RM5.16 (from RM5.37), based on the sum-of-parts valuation methodology, with a weighted average cost of capital of 8.2% and terminal growth of 1.5% for the domestic telecommunications business.
“We like TIME dotCom as its retail is gaining momentum, on the back of reach expansion and undisputable high-value products. Also, [its] data centre [business] is expanding resiliently, as information technology outsourcing, cloud computing and virtualisation are widely adopted. GBS (Global business services) are no longer a drag and expected to perform better as demand recovers,” he added.