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Resilient Operating Parameter; Expect A Stronger 2H21

We expect a stronger 2H21 (+15% hoh) driven largely by good take-up of home fibre broadband and maiden contribution from the Cyberjaya data centre in 4Q21. Trade receivables remain within expectations. We expect TIME to benefit from 5G fibre takeup, continuous expansion of home fibre footprint via JENDELA and expansion of the Cyberjaya data centre (to Phase 2). Maintain HOLD. Target price: RM4.80. Await a better entry level as the stock trades close to 1SD above its mean EV/EBITDA.

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WHAT’S NEW

  • Resilient business despite lockdown… Our recent channel checks suggest that TIME dotCom (TIME)’s business operations remain fairly resilient despite the lockdown in 3Q21. Key trends include: a) continuous growth in fibre broadband sign-ups given a wider fibre footprint, b) low churn from the re-contracting customers, c) healthy sentiments, albeit gradual recovery, from the enterprise customers, and d) strong data centre enquiries.
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  • …as we project a stronger 2H21. All in all, we expect 2H21’s earnings to increase by 15% hoh. This is predicted on: a) continuous double-digit retail revenue growth (1H21: +30% yoy), b) higher data centre contribution towards 4Q21, c) healthy associates’ contribution, and d) no red flags in the collection of receivables. Having said that, we expect margins to be slightly compressed in 2H21 with the continuous rollout of fibre and investment in data centres. For 2021, we expect earnings to grow by 9% yoy. This is underpinned by a 16% revenue growth (1H21: +13% yoy) and a stable EBITDA margin of 46% (1H21: 46.8%).
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  • Interest in data centre meets company’s expectations. To recap, the Cyberjaya landbank spans 240,000 sf and can accommodate up to four data centers – where Phase 1 (total net lettable area of 60,000 sf) was completed recently. We believe the company is seeing healthy interest from both existing customers (seeking for expansion) as well as potential new customers (such as the over-the-top players). We expect maiden revenue contribution to materialise towards 4Q21. We believe the interest is on track to meet the company’s internal threshold.
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  • Regional expansion continues. Apart from its Cyberjaya data centre, TIME aims to further expand its data centre footprint regionally. This will help to further strengthen its regional (ASEAN) connection. Currently, TIME only has one overseas data centre which is present in Thailand (NLA of c.5,500sf). The company has identified two plots of landbanks in Vietnam (one in Ho Chi Minh and another in Hanoi) to build data centres via its associate CMC. This is in line with TIME’s near-term focus to re-energise data centres to drive its revenue growth.