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Friday, January 27, 2023

Time dotCom bets on the growth of its main activity

PETALING JAYA: TIME Dotcom Bhd (TDC), which sold its stake in the AIMS Group data center (DC) business to RM2bil, is now focused on growing its core business, including capturing DC and retail opportunities.

UOB Kay Hian (UOBKH) Research expects the telco to make up for lost revenue from the sale of its 70% stake in AIMS DC in as soon as 18-24 months.

Building on a recent engagement with TDC, the research house said the AIMS Group sale should not be seen as an exit from the DC space.

“In contrast, Digital Bridge Group Inc’s quest as a key partner in AIMS DC is to further its DC business expansion in Malaysia, Thailand and Vietnam,” UOBKH Research stated in a report.

To note, the divestment of its stake in AIMS Group is part of TDC’s strategic partnership with Digital Bridge Group Inc to accelerate AIMS’s expansion into Asia.

The rationale for the divestment came after a strategic review of its DC business in late 2021, which revealed that there were significant opportunities in underserved markets in Asia.

The research house noted that the AIMS DC stake sale would dilute TDC’s 2023 net earnings by 6%.

“This, however, does not take into account the cash proceeds from the RM2bil stake sale,” the research house added.

Half of the proceeds or RM1bil has been earmarked for a special dividend, with a yield of 11%, while the other RM1bil will be reinvested in the core business, which according to UOBKH Research, will generate an average return on equity of 11% on 2017 to 2021.

UOBKH Research continues to favor TDC as it delivers a three-year earnings CAGR of 10%, supported by strong home fiber sales and contributions from DC.

“Key growth drivers include a higher number of fiber broadband subscriptions, given a broader fiber footprint and healthy demand from enterprise and over-the-top customers with accelerating cloud adoption,” he noted.

In its retail segment, the research house expects momentum to remain strong and sustainable.

This is because he believes that the number of fixed broadband subscribers will continue to grow with the ongoing acceleration of fiber network expansion leading to higher household penetration.

“While average revenue per user may be compressed amid price discounts, we believe the 2023 to 2024 top line would be lifted by strong volume-led growth,” he added.

UOBKH Research expects TDC to continue expanding its domestic passes by at least 200,000 in 2023, after reaching its target of 1.2 million locations in early January 2022.

“We expect management to deliver a commendable three-year earnings CAGR of 10% and a lush 11% special dividend by 2023,” he noted.

The research house, which has made no changes to its earnings forecasts for TDC, has maintained a “buy” call on the shares with a price target of RM6.40 per share.

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