TIME dotcom Bhd. Company Focus. A matter of TIME. Malaysia Equity Research 2 Jan 2015

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1 Bloomberg: TDC MK Reuters: TCOM.KL Refer to important disclosures at the end of this report Malaysia Equity Research 2 Jan 2015 BUY RM KLCI : 1, (Initiating Coverage) Price Target : 12-Month RM5.65 Shariah Compliance : Yes Reason for Report : Initiating coverage Potential Catalyst: Regional expansion in ASEAN Analyst Woo Kim TOH wookim@alliancedbs.com Price Relative RM Forecasts and Valuation Relative Index Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 (LHS) Relative KLCI INDEX (RHS) FY Dec (RM m) 2013A 2014F 2015F 2016F Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (sen) EPS Pre Ex. (sen) EPS Gth (%) 231 (76) EPS Gth Pre Ex (%) 51 (48) Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) CASH CASH ROAE (%) Consensus EPS (sen sen): Other Broker Recs: B: 2 S: 1 H: 2 ICB Industry : Telecommunications ICB Sector: Fixed Line Telecommunications Principal Business: A data-centric, fixed-line telecommunication provider based in Malaysia serving enterprises and operators with small presence in the retail broadband segment Source of all data: Company, AllianceDBS, Bloomberg Finance L.P A matter of TIME Prime beneficiary of the secular growth trend in data amid rapid expansion of its international bandwidth business Growth anchored by commissioning of APG cable system in 3Q15; FASTER and AAE-1 in 2016 or early 2017 Initiate coverage: BUY. SOP-based TP of RM5.65 Data-centric player. TIME is a data-centric, fixed-line telecommunication provider based in Malaysia. The company has expanded its business to international bandwidth and data centre operations following the acquisitions of Global Transit and AIMS in Leveraging on strong growth in data. Global internet bandwidth usage is expected to grow at a 35% CAGR from , largely driven by rising Internet penetration and faster Internet access. We believe TIME is a prime beneficiary of this secular growth trend due to its focus on data (>80% of revenue) and also the rapid expansion of its international bandwidth business. Decent earnings growth. Normalised for one-off items and excluding dividend income from DiGi, we forecast TIME to achieve earnings growth of 11-13% in FY15-16F. This will be largely underpinned by its international bandwidth business whose growth will be boosted by the commissioning of APG in 3Q15. Meanwhile, its investment into two other submarine cable systems (i.e. FASTER and AAE-1) would only start contributing meaningfully in FY17F. BUY, SOP-based TP of RM5.65. Our TP is derived from: 1) DCF-valuation of its core business (9.5% WACC, 2.5% TG) which gives a FV of RM3.99/share; and 2) Its 137.5m shares in DiGi worth RM1.66/share. Our TP implies a FY15 valuation of 18.3x PE, cheapest among the Malaysian telcos. At A Glance Issued Capital (m shrs) 574 Mkt. Cap (RMm/US$m) 2,800 / 799 Major Shareholders Pulau Kapas Ventures Sdn Bhd (%) 31.5 Khazanah Nasional Bhd (%) 11.4 Kumpulan Wang Persaraan (%) 6.8 Free Float (%) 50.3 Avg. Daily Vol.( 000) 622 Refer to important disclosures at the end of this report

2 INVESTMENT THESIS Profile TIME is a data-centric, fixed-line telecommunication provider based in Malaysia which mainly serves enterprises and operators. Through Global Transit and AIMS, it also has interest in international bandwidth as well as data centre businesses. Rationale Leveraging on the secular growth in data. TIME is a prime beneficiary of the secular growth trend due to its focus on data (>80% of revenue) and also the rapid expansion of its international bandwidth business. Capacity upgrade and investment into new submarine cables Unity capacity is being expanded from 800Gbps to 1.1Tbps and is likely to be completed in early FY15. TIME has also invested in two new submarines cables (i.e. FASTER and AAE-1) which are expected to be completed in 2016 or early Undemanding valuation TIME s valuation is the cheapest among the Malaysian telcos. Though its dividend yield is lower than its peers, we believe this is more than compensated by its strong growth potential. Valuation Our SOP-based TP for TIME is RM5.65, which is derived from: 1) DCF-valuation of its core business (9.5% WACC, 2.5% terminal growth) which gives a FV of RM3.99/share; and 2) Its 137.5m shares in DiGi, worth RM1.66/share. Risks Steeper decline in bandwidth prices Any steeper-than-expected decline in bandwidth prices and/or slowdown in demand will be an earnings risk to TIME from its international bandwidth business. Potential damage to submarine cables Service disruption or failure of TIME submarine cables due to damage (from natural disasters, etc.) will cause TIME to fail to meet customers performance requirements. In turn, this could cause TIME to lose customers and/or become liable to them for damages. Intense price competition from incumbent TM Aggressive price competition in the domestic market by incumbent Telekom Malaysia (TM) is a risk, though we believe the probability is low, given TM s dominant market share of 85%. Forex risks TIME is exposed to forex risks since sales of its international bandwidth business are denominated in USD. Source: AllianceDBS Page 2

3 SWOT Analysis Strengths TIME mainly focuses on data, which is currently experiencing strong growth. Less exposure to voice business which is in a structural decline trend and also facing competition from cellular operators. TIME s network infrastructure is 100% fibre-optic based which is future-proof and could last a very long time if it is well maintained. One of the very few data centre operators in Malaysia that have achieved a decent utilisation rate for its facilities. Weakness Lack of last mile infrastructure means that TIME cannot compete effectively with incumbent TM in the domestic wholesale market. Limited presence in the domestic retail segment. Opportunities Well-positioned to capture the secular growth in data (particularly from ASEAN region) due to its investment in submarine cable systems. Expansion into ASEAN region leveraging on its submarine cable systems (i.e. APG and AAE-1) which pass through several ASEAN countries. In a strong position to benefit from potential consolidation in the data centre market in Malaysia. Threats Competition from new submarine cable systems. Imposition of protectionism laws by local regulators could limit TIME s expansion into other countries in the ASEAN region. Susceptible to fluctuations in forex, given that international bandwidth sales are denominated in USD. Source: AllianceDBS Page 3

4 Company Background A fixed-line operator in Malaysia. TIME dotcom Berhad (TIME) is a data-centric, fixed-line telecommunication provider based in Malaysia. Since its listing in 2001, it has undergone several major restructurings, including; 1) The disposal of its cellular unit to Maxis in 2003; and 2) The transfer of its 3G licence to DiGi in 2008 in return for a 3.5% stake in DiGi. Under the new management, TIME acquired Global Transit and AIMS in 2012, effectively expanding its product offerings and business to international bandwidth and data centre operations. Malaysian fixed-line mainly focused on wholesale and enterprise segments. The Malaysian fixed-line business is anchored by a 6,000-km-long advanced fibre optic network named Cross Peninsular Cable System (CPCS), which passes through Thailand, Malaysia and Singapore. It is a fully meshed route offering five diverse routes across Malaysia, allowing for very high availability. CPCS is the core asset of TIME s Malaysian fixed-line business and is now a 100% next-generation IP network after extensive upgrades in For the wholesale segment, TIME mainly provides backhaul capacity to domestic cellular operators, as well as telcos in Thailand and Indochina, that are seeking access to Singapore. It also has a strong presence in the enterprise segment, especially among financial institutions, providing them fibre optic-based connectivity between key locations. International bandwidth business via Global Transit. TIME s regional network is operated by its subsidiary, Global Transit which offers services to operators and enterprises across the region. Global Transit owns international submarine cable assets such as UNITY (trans-pacific) and Asia Pacific Gateway (expected to be completed by 3Q15, connecting 11 locations in nine countries). It has also recently committed to participate in two other submarine cable consortiums (i.e. FASTER and AAE-1) which will likely be completed in 2016 or early Data centre operations via AIMS. TIME s data centre operations come under its wholly-owned subsidiary, AIMS. It offers carrier neutral co-location facilities while also offering managed and cloud services, mainly at its two key sites, i.e. Menara AIMS, KL and CJ1 Centre, Cyberjaya. Apart from its 50,000 sq ft of hightier data centre floor space in Malaysia, AIMS also has presence in Singapore, Hong Kong and Thailand via strategic alliances with local co-location partners. TIME Groups of Businesses Source: Company Strong management team. TIME s financial performance in its early days was not satisfactory due to management issues and high turnover of its CEO. Things started to change for the better when its major shareholder, Khazanah Nasional appointed Afzal Abdul Rahim as the new CEO in August Afzal made a major revamp of senior management and recruited experienced personnel within the industry to fill key senior management positions. See below for the profile of senior management. As at April 2014, Afzal had a 36% indirect stake in TIME. This was accumulated through: 1) Injection of Khazanah Nasional stake into Pulau Kapas Venture, a JV between Khazanah Nasional and Afzal s private vehicle in order to facilitate his entry into TIME in 2008; and 2) The acquisition of Global Transit and AIMS in 2012 (previously owned by Afzal and his business partner). Page 4

5 Key Management Team Name and Designation Afzal Abdul Rahim Chief Executive Officer Rossana Rashidi Deputy Chief Executive Officer Long Sher Neng Chief Financial Officer Yeong Su-Meng Chief Marketing Officer Lee Guan Hong Chief Engineering Officer Lee Weng Fak Head of Enterprise Business Saiful Husni Samak CEO, Global Transit Chiew Kok Hin CEO, AIMS Group Age Profile 36 Appointed Director and CEO in Oct Started his career in the automotive industry with Group Lotus PLC. Founded the Malaysian Internet Exchange (MyIX) in Holds a Degree in Mechanical Engineering with Electronics, specialising in Acoustic Wave Theory from University of Sussex, UK. 48 Appointed Director and Deputy CEO in Oct Has more than 25 years of experience in the banking and telecommunication sectors, with expertise in financial management. Prior to TIME, Rossana was attached to Maxis Berhad as CFO. Holds a Bachelor of Arts in Banking and Finance from University of Canberra, Australia. 40 Joined TIME in March 2010 and was appointed CFO in September More than 15 years in financial management and operations. Holds a Bachelor of Business Administration (Hons) from Western Michigan University, USA. 44 Appointed Chief Marketing Officer in October More than 20 years of experience in the telco sector, with expertise in product marketing and development. Prior to joining TIME, she was attached to Maxis Berhad. Holds a Degree in Electronics and Communications Engineering from University of Bristol, UK and MBA from Imperial College London. 39 Joined TIME in February 2009 and was appointed Chief Engineering Officer in September More than 15 years of experience ranging from Internet services to the telecommunications industry. Prior to joining TIME, he was attached to DiGi. Holds a Bachelor s Degree in Management Information Systems from University of Oklahoma, USA. 52 Joined TIME in May More than 30 years of experience in ICT industry, dealing with fast-paced, rapidly expanding companies. Prior to joining TIME, Weng Fak was CEO/Co-founder of Niju Corporation S/B, a systems integrator and ICT solution provider. Holds a Diploma in Computer Science, IDPM, UK. 45 Appointed CEO of Global Transit in May More than 20 years of experience in the banking and telco industries. Prior to Global Transit, he was attached to Fibre Comm as Chief Marketing Officer. Holds an MBA from University of Southern Cross, Australia and Degree in Economics and Finance from University of Hartford, USA. 38 Joined AIMS in 1997 and was appointed CEO in January Chairman of Malaysian Internet Exchange (MyIX) a non-profit and neutral Internet Exchange where local ISPs and content providers connect to exchange Internet traffic. Holds an MBA from Nottingham Trent University, UK. Source: Company, AllianceDBS Page 5

6 Investment Merits TIME APG and Trans-Pacific submarine cable systems Leveraging on the secular growth in data. According to Telegeography, global internet bandwidth usage is expected to grow at a 35% CAGR from , largely driven by rising Internet penetration and faster Internet access. We believe TIME is a prime beneficiary of this secular growth trend due to its focus on data (>80% of revenue) and also the rapid expansion of its international bandwidth business. Global internet bandwidth usage (Gbps) 800, , ,522 Sources: Company 600, , , , , ,000-46,210 Sources: Telegeography 175, ,491 93,921 67, , , , , F 2014F 2015F 2016F 2017F 2018F 2019F On the domestic side, we see TIME also benefitting from rising mobile data usage and the rollout of 4G LTE services, as cellular operators face the need to fiberise their base tower stations in order to cater for the surge in bandwidth demand. Apart from that, higher internet penetration, particularly in the Indochina region, should also drive higher transborder traffic for TIME, as telcos in that region increasingly seek access to Singapore via Malaysia. Growth Strategies Capacity upgrade and investment into new submarine cables. We understand that the Unity cable system is almost at full capacity. As such, TIME is in the midst of upgrading the transmission technology to a higher speed which should expand the capacity of Unity from 800Gbps to 1.1Tbps. This will likely be completed in early FY15. In anticipation of the higher traffic for the Japan-US route once APG starts commissioning by 3Q15, TIME has also recently participated in a consortium to build another Trans- Pacific cable system called FASTER. FASTER will provide TIME with an additional capacity of 10Tbps (10x more than Unity) once it is completed in 2016 or early Asia-Africa-Europe-1 Cable System (AAE-1) A better value proposition once APG is completed. Once APG is completed, TIME will have its own end-to-end connectivity to North Asia and US. This should help to reduce its reliance on Singapore as a hub to carry its customers traffic to and from Japan and US, saving some costs in the process. Going forward, TIME also intends to sell APG and Unity bandwidth together as a package, hence providing a better value proposition to its customers who are seeking connectivity ultimately to the US. We believe this should help to drive higher utilisation rates as well as fetch better margins for TIME s international bandwidth business. Sources: Company Additionally, TIME has also invested into AAE-1 which will extend its own-network reach to South Asia, the Middle East and Europe, once completed in It will also provide diversity for its APG submarine cable system capacity between Malaysia and Hong Kong. The allocation of capacity to Thailand, Cambodia and Vietnam will also further support its regional expansion initiatives in the future. Page 6

7 Regional expansion e in ASEAN. Through APG, TIME will have direct network connectivity to ASEAN countries such as Thailand and Vietnam. This would help to facilitate its longerterm strategy to expand in the ASEAN region. Potential consolidation c in the data d centre market. Despite overcapacity of data centres in Malaysia, TIME is still able to achieve decent occupancy rates of 60-80% for its facilities at Menara AIMS and CJ1, Cyberjaya. Management is aware that other data centre operators are not doing well and is keen to take over their assets if they go under. Nonetheless, if this scenario fails to materialise, TIME still has a piece of land in Cyberjaya (purchased recently) where it can build data centre facilities, if needed. Key Risks Steeper decline in bandwidth prices. International bandwidth prices have always been in a natural declining trend, though this has been more than offset by the strong demand growth, resulting in modest growth in revenue for most routes over time. Based on statistics by Telegeography, median prices for major routes declined between 10-26% from 2012 to 2013, and between 17-30% compounded annually from 2010 to Any steeper-than-expected decline in bandwidth prices (we assume 20% price erosion annually) and/or slowdown in demand will be an earnings risk to TIME from its international bandwidth business. Potential damage to submarine cables. Service disruption or failure of TIME submarine cables due to damage (from natural disasters, etc.) will cause TIME to fail to meet customers performance requirements. In turn, this could cause TIME to lose customers and/or become liable to them for damages. Nonetheless, this risk should lessen in the future as TIME invests and owns more submarine cables. These submarine cables could serve as backup/alternative to each other as and when one of them suffers a service disruption. Intense price competition from incumbent TM. Aggressive price competition in the domestic market by incumbent Telekom Malaysia (TM) is a risk, though we believe the probability is low, given TM s dominant market share of 85%. Any irrational price competition is likely to hurt TM more than TIME. Forex risk. TIME is exposed to forex risks since sales of its international bandwidth business are denominated in USD. Its USD-denominated sales are expected to grow higher in the future (currently at about 25%), in tandem with the expansion of its international bandwidth business. Financial Highlights Adjusted earnings for TIME (excluding one-off and dividend income from DiGi) Sources: Company, AllianceDBS Strong earnings growth in FY15-16F 16F. Normalised for one-off items (revaluation gain and last mile tax incentives) and excluding dividend income from DiGi, we forecast TIME to achieve earnings growth of 11-13% in FY15-16F. This will be largely underpinned by its international bandwidth business in the wholesale segment whose growth will be boosted by the commissioning of APG starting 3Q15. Meanwhile, we expect other major business divisions such as domestic wholesale, enterprise, and data centre to record relatively stable growth (see Key Assumptions table on Page 10 for a summary of the y-o-y growth for TIME s key business divisions). Revenue breakdown, by segment 1, Sources: Company, AllianceDBS Adjusted earnings (in RM m) F 2015F 2016F Wholesale (include Global Transit) Enterprise (include data center) SME & Consumer F 2015F 2016F Strong wholesale segment driven by Global Transit. We forecast growth for the wholesale segment to accelerate to 15% and 24% in FY15-16F, stronger than the expected 10% growth in FY14F. This is mainly due to the upgrade in Unity capacity (from 800Gbps to 1.1Tbps) and commissioning of Page 7

8 the APG cable system (capacity of 3.4Tbps) starting 3Q15. The stronger USD (vs. Ringgit) also partly helps to boost revenue since the sales of international bandwidth are denominated in USD. Meanwhile, we expect growth for domestic wholesale to remain healthy, given increasing node fiberisation by telcos to cater to higher demand for data and the rollout of 4G LTE services. Also, with end-to-end connectivity to North Asia and US once APG starts operating, we believe there will also be an increase in transborder traffic from Indochina. Conservative growth forecast for enterprise segment. Enterprise segment consists of revenue from government organisations and corporates, as well as from its data centre business. We conservatively forecast growth for this segment to be within 6-8% in FY14-FY16F, lower than the doubledigit growth recorded over the past few years. This is mainly due to the competitive market environment where; 1) There has been a shift by customers from dedicated corporategrade broadband to consumer-grade broadband, given the introduction of Unifi-for-Business by TM; and 2) Overcapacity of data centres in the Malaysia market. Improving margins. We expect TIME s EBITDA margins in FY14-16F to stay at 35-36%, in line with management s guidance. Margins should gradually improve, albeit marginally, as the utilisation rate of its submarine cable system (i.e. upgraded Unity and newly commissioned APG) rises progressively over the years. TIME EBITDA margins (%) 45% 40% 35% 30% 25% 20% 27.0% 39.7% Sources: Company, AllianceDBS EBITDA margins 32.8% 35.1% 35.2% 35.4% 36.3% F 2015F 2016F Effective tax rate to remain low. The effective tax rate for TIME has been low all this while, given substantial capital allowances and tax losses accumulated over the years. We assume the effective tax rate to remain at 5% in FY14-FY15F, but would rise to 7% in FY16F, given higher contribution from its profitable subsidiary, i.e. Global Transit. Note that there was a one-off positive tax charge in 2013, as TIME was granted a tax incentive for its last mile network facilities. Higher capex in FY15-16F 16F. TIME is guiding for higher capex of RM415m and RM250m in FY15-16F respectively. The additional capex is to finance the construction of the FASTER and AAE-1 submarine cable systems, which total investments cost about USD56m and USD44m respectively. Thereafter, we assume capex to normalise to RM m, in line with management s guidance of RM m for recurring capex. Borrowings to partly finance capex. In view of the higher capex, we believe TIME is likely to partly finance its capex via borrowings. This will turn its balance sheet from net cash currently into a slight net debt position by FY15F, with gearing level at less than 0.1x net-debt/equity. This is still well below management s comfortable gearing level of 0.3x net debt-to-equity and also below its peers in the Malaysian telco sector. Dividend policy. TIME has formalised a dividend policy in early 2014 to pay up to 25% of normalised net profit. We see no issue for TIME to meet its dividend policy, given its strong cashflow generation and low gearing level. This implies a FY14-16F net dividend yield of % for TIME. Valuation Initiate coverage: BUY, SOP-based TP of RM5.65. We initiate coverage on TIME with a BUY recommendation and a SOPbased TP of RM5.65, implying a FY15 valuation of 18.3x PE, the cheapest among Malaysian telcos. Though its dividend yield is lower than its peers, we believe this is more than compensated by its strong growth potential, especially beyond FY15F, when most of its submarine cables system will start to come onstream. Core business valued at RM3.99 per share based on DCF methodology. This is based on WACC of 9.5% and terminal growth of 2.5% (see Table below for our DCF calculation). DiGi stake is worth RM1.66 per TIME share. After the distribution of dividend-in-specie in 2013, TIME is left with approximately 137.5m shares in DiGi. At our TP of RM6.60 for DiGi, this stake is worth about RM907m or RM1.66 per TIME share. Page 8

9 Fair value calculation for TIME FY 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F Terminal Value EBIT Taxation (6.3) (7.3) (11.9) (18.7) (24.4) (30.5) (31.9) (31.0) (30.3) NOPAT Dep. & Amortisation Working capital changes (0.8) (0.7) (0.6) Capex (220.0) (415.0) (250.0) (200.0) (175.0) (175.0) (175.0) (150.0) (150.0) Others (Dividend from DiGi) (83.3) (31.8) (34.1) (37.7) (41.5) (43.3) (45.7) (47.4) (49.5) FCFF (14.8) ,083.8 Discount factor PV of FCFF (13.6) ,633.2 Terminal growth 2.5% NPV 2,313.7 end Dec end Dec 2015 (315.7) Equity value 2,184.4 No. of shares Equity value/share 3.99 DiGi shares (m) TP for DiGi (RM/share) 6.60 Value (RM m) Value/share 1.66 TP for TIME (RM/share) 5.65 Source: Company, AllianceDBS Peer comparison (as at 31 Dec 2014) EPS Growth P/E EV/EBITDA ROAE Dividend Yield Call Target Price Current Price Market Cap (USD) CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 Axiata Group Hold ,323.6 (13%) 12% 25.2x 22.5x 10.0x 9.0x 12% 13% 3.0% 3.6% Maxis Fully Valued ,724.5 (2%) 9% 25.2x 23.0x 13.7x 13.1x 37% 44% 5.8% 4.4% DiGi.com Buy , % 11% 24.6x 22.3x 15.2x 13.8x 298% 330% 4.1% 4.5% Telekom Malaysia Hold ,338.3 (22%) 19% 30.7x 25.9x 7.7x 7.6x 11% 13% 2.9% 3.5% Time dotcom Buy (48%) 12% 17.7x 15.8x 10.5x 10.1x 7% 8% 1.4% 1.6% Average (5%) 12% 25.7x 22.9x 12.0x 11.2x 92% 103% 4.0% 4.0% Sources: AllianceDBS, Bloomberg Finance L.P Page 9

10 Key Assumptions FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Revenue growth (%) Wholesale (10.1) Enterprise SME & Consumer (24.0) Driven by increased submarine capacity from Unity upgrade and commissioning of APG Segmental Breakdown FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Revenues (RM m) Data Voice Data centre Others Total Source: Company, AllianceDBS Growth largely driven by data, especially from international bandwidth business Page 10

11 Income Statement (RM m) FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Revenue Cost of Goods Sold (190) (286) (358) (392) (433) (493) Gross Profit Other Opng (Exp)/Inc (53) (59) (72) (85) (89) (108) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc 7 0 (2) (3) (7) (12) Exceptional Gain/(Loss) Pre-tax Profit Tax (2) (6) (7) (11) Minority Interest Preference Dividend Net Profit Net Profit before Except EBITDA Growth Revenue Gth (%) (2.2) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) (76.5) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) NM NM Source: Company, AllianceDBS Margins Trend 116.0% 96.0% 76.0% 56.0% 36.0% 16.0% 2012A 2013A 2014F 2015F 2016F Operating Margin % Net Income Margin % One-off gain from the revaluation of DiGi shares Recognition of tax incentive related to last mile network facilities Page 11

12 Balance Sheet (RM m) FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Asset Breakdown Net Fixed Assets ,267 1,406 Invts in Associates & JVs Other LT Assets 1,109 1,741 1,119 1,119 1,119 1,119 Cash & ST Invts Inventory Debtors Other Current Assets Total Assets 1,951 2,860 2,352 2,485 2,782 3,003 ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder s Equity 1,758 2,480 2,004 2,117 2,244 2,384 Minority Interests Total Cap. & Liab. 1,951 2,860 2,352 2,485 2,782 3,003 Non-Cash Wkg. Capital (34) (67) (19) (23) (25) (25) Net Cash/(Debt) (113) (110) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) N/A N/A N/A N/A N/A N/A Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH Capex to Debt (%) N/A Source: Company, AllianceDBS Higher debt to fund capex Page 12

13 Cash Flow Statement (RM m) FY Dec 2011A 2012A 2013A 2014F 2015F 2016F Pre-Tax Profit Dep. & Amort Tax Paid (1) (6) (5) (6) (7) (11) Assoc. & JV Inc/(loss) Chg in Wkg.Cap. (4) 32 (47) Other Operating CF (83) (105) (376) (40) (42) (46) Net Operating CF Capital Exp.(net) (117) (150) (177) (220) (415) (250) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF (67) (143) (139) (180) (373) (204) Div Paid (38) (42) (47) Chg in Gross Debt Capital Issues Other Financing CF 0 (51) (2) Net Financing CF 0 8 (1) (38) Currency Adjustments Chg in Cash (15) (44) 53 Opg CFPS (sen) Free CFPS (sen) (6.3) (1.4) (6.1) (3.2) (35.5) 0.6 Capital Expenditure A 2013A 2014F 2015F 2016F Capital Expenditure (-) Additional capex for FASTER and AAE-1 submarine cable systems Source: Company, AllianceDBS Page 13

14 Quarterly / Interim Income Statement (RM m) FY Dec 2Q Q2013 4Q2013 1Q2014 2Q Q2014 Revenue Cost of Goods Sold (102) (107) (122) (110) (120) (109) Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc N/A N/A N/A N/A N/A N/A Net Interest (Exp)/Inc (2) (2) (2) (2) (2) (2) Exceptional Gain/(Loss) 349 N/A N/A N/A N/A N/A Pre-tax Profit Tax (2) (3) 151 (2) (2) (2) Minority Interest Net Profit Net profit bef Except EBITDA Margins Trend 350% 300% 250% 200% 150% 100% 50% 0% 2Q2013 3Q2013 4Q2013 Operating Margin % Net Income Margin % Recognition of tax incentives for last mile network facilities 1Q2014 2Q2014 3Q2014 Growth Revenue Gth (%) nm (1.6) 13.1 (11.6) 18.1 (3.3) EBITDA Gth (%) nm (17.9) 15.0 (8.9) Opg Profit Gth (%) nm (25.0) 15.7 (21.4) Net Profit Gth (%) nm (92.8) (84.2) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Source: Company, AllianceDBS Page 14

15 DISCLOSURE Stock rating definitions STRONG BUY - > 20% total return over the next 3 months, with identifiable share price catalysts within this time frame BUY - > 15% total return over the next 12 months for small caps, >10% for large caps HOLD - -10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps FULLY VALUED - negative total return > -10% over the next 12 months SELL - negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame Commonly used abbreviations Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date Page 15

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Additional information is, subject to the overriding issue of confidentiality, available upon request to enable an investor to make their own independent evaluation of the information contained herein. Wong Ming Tek, Executive Director Published and Printed by AllianceDBS Research Sdn Bhd ( U) (formerly known as HWANGDBS Vickers Research Sdn Bhd) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah, Kuala Lumpur, Malaysia. Tel.: Fax: general@alliancedbs.com Page 16