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Monday, February 21, 2011

Timecom - Time is Money (OSK)

We believe Time dotCom (TDC), Malaysia’s second largest fixed line telecommunication operator with a nationwide fiber optic network, is poised for stronger earnings growth ahead, capitalizing on its expansion into new markets, increasing data and leasing needs from enterprises and rising backhaul demand helped by the proliferation of mobile broadband. We have a NON RATED call on the stock. Ascribing a 18x FY12 PER multiple on its core operation, RM0.30/share for its 3.5% stake in DiGi and incorporating tax credits worth RM634m, TDC is fairly valued at RM0.95.

We value TDC at RM0.95 based on SOP consisting of: i) target 18x FY12 PER to its core operations, ii) RM0.30 per share on its 3.5% DiGi’s stake based on our in-house TP of RM27.90, and iii) tax credits of RM634m. Our target FY12 PER of 18x is at a 25% premium to domestic mobile incumbents (i.e. Maxis, DiGi, Axiata), which we feel justifiable as TDC’s growth trajectory coming from a low base is higher than its peers’ (earnings CAGR of 19% over next 2 FYs vs 5%-13% for its peers according to consensus estimates). Our ascribed valuation implies a PEG ratio of 0.9x relative to its mobile peers’ 1.0x-2.9x.

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