Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: OSK
DiGi.Com Bhd
(May 3, RM29.60)
Maintain neutral at RM29.08 with an upward revision of the target price to RM29.20 from RM27.90: DiGi released its 1QFY11 results at mid-day on April 29. Core earnings came in at RM331.4 million (+19% year-on-year) against a revenue of RM1.43 billion (+11% y-o- y) supported by: (i) stronger data revenue momentum (+8% quarter-on-quarter/ +38% y-o-y), offsetting the extended contraction in voice revenue (-4% y-o-y and '3% q-o-q) with 15% of its subscriber base now on smartphones against 13% a quarter ago.
The continuing tight lid on operational expenditure contributed to the improvement in earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, from 44.7% in 1Q10 and 45.7% in 4Q10 to 45.9% in 1QFY11. Management has declared 43 sen a share first interim dividend, equating to 100% of its net profit.
DiGi is undertaking a two-to-three year network modernisation exercise with ZTE Corp Sdn Bhd to swap its existing network for a new one.
This is to cater for growing data demand with the new network long-term evolution (LTE). The modernisation exercise will result in DiGi accelerating depreciation on its current 2G network as its lifespan is shortened. Management expects the impact to be front-loaded at RM400 to RM450 million for FY11, RM500 million to RM550 million in FY12 and less than RM100 million in FY13.
While putting pressure on earnings in the medium term, DiGi foresees good operational and capital expenditure savings in the longer term (post FY13). Management believes the accelerated depreciation will more than offset operational expenditure savings from the ongoing network collaboration with Celcom for FY11 and FY12, resulting in earnings being crimped.
DiGi has guided for the negative impact from the new roaming rates to be some RM1 million based on the profile of its roaming traffic.
We reduce our FY11/12 net profit forecast by 24% to 32% after building in the accelerated depreciation charges and making some housekeeping adjustments to our operational expenditure assumptions. Our fair value on the stock is raised to RM29.20 from RM27.90 as we now roll over to FY12.
DiGi remains a 'neutral' following our earlier downgrade on April 21 after the good share price run year-to-date. ' OSK Research, May 3
This article appeared in The Edge Financial Daily, May 4, 2011.
Company Name: DIGI.COM BHD
Research House: OSK
DiGi.Com Bhd
(May 3, RM29.60)
Maintain neutral at RM29.08 with an upward revision of the target price to RM29.20 from RM27.90: DiGi released its 1QFY11 results at mid-day on April 29. Core earnings came in at RM331.4 million (+19% year-on-year) against a revenue of RM1.43 billion (+11% y-o- y) supported by: (i) stronger data revenue momentum (+8% quarter-on-quarter/ +38% y-o-y), offsetting the extended contraction in voice revenue (-4% y-o-y and '3% q-o-q) with 15% of its subscriber base now on smartphones against 13% a quarter ago.
The continuing tight lid on operational expenditure contributed to the improvement in earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, from 44.7% in 1Q10 and 45.7% in 4Q10 to 45.9% in 1QFY11. Management has declared 43 sen a share first interim dividend, equating to 100% of its net profit.
DiGi is undertaking a two-to-three year network modernisation exercise with ZTE Corp Sdn Bhd to swap its existing network for a new one.
This is to cater for growing data demand with the new network long-term evolution (LTE). The modernisation exercise will result in DiGi accelerating depreciation on its current 2G network as its lifespan is shortened. Management expects the impact to be front-loaded at RM400 to RM450 million for FY11, RM500 million to RM550 million in FY12 and less than RM100 million in FY13.
While putting pressure on earnings in the medium term, DiGi foresees good operational and capital expenditure savings in the longer term (post FY13). Management believes the accelerated depreciation will more than offset operational expenditure savings from the ongoing network collaboration with Celcom for FY11 and FY12, resulting in earnings being crimped.
DiGi has guided for the negative impact from the new roaming rates to be some RM1 million based on the profile of its roaming traffic.
We reduce our FY11/12 net profit forecast by 24% to 32% after building in the accelerated depreciation charges and making some housekeeping adjustments to our operational expenditure assumptions. Our fair value on the stock is raised to RM29.20 from RM27.90 as we now roll over to FY12.
DiGi remains a 'neutral' following our earlier downgrade on April 21 after the good share price run year-to-date. ' OSK Research, May 3
This article appeared in The Edge Financial Daily, May 4, 2011.
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