• Keep BUY and DCF TP of MYR6, 16% upside, c.4% FY24F yield. Time dotCom’s 3Q23 and 9M23 results tracked in line with our and consensus’ estimates with double-digit topline and EBITDA growth YTD. We continue to like the stock as a strategic infrastructure play. The group’s appeal lies in management’s execution prowess, earnings quality, and the solid balance sheet which portends further capital management opportunities. TDC remains one of our preferred sector picks.

• Broadly in line. 3Q23 core earnings rebounded 6.1% QoQ on higher EBITDA margin, post the divestment of the data centre (DC) business in April. This brought 9M23 core earnings to MYR302m, at 68% of our forecast (consensus: 67%), within historical run rates with a seasonally higher December quarter anticipated.

• Wholesale up 2% YTD; cloud and other solutions revenue down 6% while associates jumped 32% QoQ. Growth continues to be spearheaded by the retail fibre broadband (FBB) segment (YTD: +21%), followed by enterprise (+5%) and wholesale (+2%). Product-wise, cloud and solutions revenue grew 4% QoQ – largely driven by AVM Cloud (+7.4% QoQ) – accounting for c.12% of group revenue. While YTD cloud revenue was up 17.2%, this was more than offset by weaker other solutions’ sales (likely from the more competitive systems integration jobs). Associate contribution expanded 32% QoQ, with full-quarter contribution of AIMS (DC business) as a 30% JV (MYR2.5m). This compares with the AIMS estimated PAT contribution of MYR11m in 1Q23 prior to the deconsolidation.

• Focus on execution; expanding FBB footprint. Management is looking to hasten the expansion of its FBB footprint (currently 1.5-1.6m premises) with 200-250k additions pa. Based on a guided addressable market for multi-dwelling units of c.3m (relative to >7m for landed residential properties), there is still significant room to grow the FBB business, notwithstanding competition from the incumbent and/or new access seekers. Further clarity on the group’s mid- to longer-term strategic plans will be communicated following the release of its 4Q23 results.

• Key risks and ESG. Weaker-than-expected margins/earnings, retail FBB competition, and higher-than-expected capex are risks to our forecasts and call. Our TP includes a parity ESG premium, as TDC’s ESG score is in line with the country mean. Although there were no data breaches in FY22, greenhouse gas (GHG) emission disclosures are limited to energy consumption/intensity of DCs, with some progress made in reducing its carbon footprint. Energy efficient rate (energy consumption/net lettable area) was constant in FY22, despite the expansion of the DC business.

Source: RHB Securities Research - 23 Nov 2023