Stock Name: DIGI
Company Name: DIGI.COM BHD
DiGi.Com Bhd
(July 13, RM30)
Maintain outperform at RM29.50 with target price of RM34: We estimate that DiGi's 2Q11 core net profit fell 21% year-on-year (y-o-y) and 6% quarter-on-quarter (q-o-q) to around RM260 million to RM265 million on the back of higher depreciation as the telco began to accelerate the depreciation of its equipment.
We assume that it increased depreciation by RM100 million in 2Q11, given its guidance of RM400 million to RM450 million acceleration in FY11, followed by RM500 million to RM550 million in FY12 and less than RM100 million in FY13 as it switches its network to a multi-technology (2G/3G/4G) single RAN system. DiGi is scheduled to announce its 2Q results on July 20.
In our view, 2Q probably rose 1% to 2% q-o-q and 9% to 10% y-o-y, driven by non-voice revenues and subscriber growth. Voice revenue continued to decline on the back of further erosion of average revenue per minute (ARPM), and increasing substitution by data messaging.
During the quarter, DiGi launched 'Super Reload' which bundles RM75 worth of minutes, SMS and MMS in a RM15 reload voucher. We think that these features will further commoditise voice, SMS and MMS. That said, we expect DiGi to continue making headway in the Malay and rural user segments, which will mitigate the decline in voice revenues.
We think that earnings before interest, tax, depreciation and amortisation (Ebitda) margin was at least stable on a q-o-q basis at around 45%, thanks to DiGi's efficiency measures. Recall that Ebitda margin had risen by 1.1 percentage points q-o-q and 0.4 pps y-o-y in 1Q11.
We expect DiGi to maintain its dividend per share (DPS) of 53 sen, unchanged from 1Q11 and up 23% y-o-y despite the lower net profit arising from the higher depreciation. The company has said that it will maintain its absolute DPS in 2011 ' its payout will exceed 100% against its announcement earlier this year that the payout will be capped at 100%.
We maintain our 'outperform' and discounted cash flow-based target price of RM34 (weighted average cost of capital 11.6%). We like its high single-digit revenue growth, which is the highest among the telcos, and the steady rise in Ebitda margins.
As 75% of its revenue comes from prepaid users, DiGi will be a key beneficiary of the industry's plan to pass on the 6% sales tax to prepaid users on Sept 1. This is a likely catalyst and will help net profit surprise on the upside. Our FY12/FY13 core net profit estimates are 13% to 23% above consensus. ' CIMB Research, July 13
This article appeared in The Edge Financial Daily, July 14, 2011.
Company Name: DIGI.COM BHD
| Research House: CIMB | Price Call: BUY | Target Price: 34.00 |
DiGi.Com Bhd
(July 13, RM30)
Maintain outperform at RM29.50 with target price of RM34: We estimate that DiGi's 2Q11 core net profit fell 21% year-on-year (y-o-y) and 6% quarter-on-quarter (q-o-q) to around RM260 million to RM265 million on the back of higher depreciation as the telco began to accelerate the depreciation of its equipment.
We assume that it increased depreciation by RM100 million in 2Q11, given its guidance of RM400 million to RM450 million acceleration in FY11, followed by RM500 million to RM550 million in FY12 and less than RM100 million in FY13 as it switches its network to a multi-technology (2G/3G/4G) single RAN system. DiGi is scheduled to announce its 2Q results on July 20.
In our view, 2Q probably rose 1% to 2% q-o-q and 9% to 10% y-o-y, driven by non-voice revenues and subscriber growth. Voice revenue continued to decline on the back of further erosion of average revenue per minute (ARPM), and increasing substitution by data messaging.
During the quarter, DiGi launched 'Super Reload' which bundles RM75 worth of minutes, SMS and MMS in a RM15 reload voucher. We think that these features will further commoditise voice, SMS and MMS. That said, we expect DiGi to continue making headway in the Malay and rural user segments, which will mitigate the decline in voice revenues.
We think that earnings before interest, tax, depreciation and amortisation (Ebitda) margin was at least stable on a q-o-q basis at around 45%, thanks to DiGi's efficiency measures. Recall that Ebitda margin had risen by 1.1 percentage points q-o-q and 0.4 pps y-o-y in 1Q11.
We expect DiGi to maintain its dividend per share (DPS) of 53 sen, unchanged from 1Q11 and up 23% y-o-y despite the lower net profit arising from the higher depreciation. The company has said that it will maintain its absolute DPS in 2011 ' its payout will exceed 100% against its announcement earlier this year that the payout will be capped at 100%.
We maintain our 'outperform' and discounted cash flow-based target price of RM34 (weighted average cost of capital 11.6%). We like its high single-digit revenue growth, which is the highest among the telcos, and the steady rise in Ebitda margins.
As 75% of its revenue comes from prepaid users, DiGi will be a key beneficiary of the industry's plan to pass on the 6% sales tax to prepaid users on Sept 1. This is a likely catalyst and will help net profit surprise on the upside. Our FY12/FY13 core net profit estimates are 13% to 23% above consensus. ' CIMB Research, July 13
This article appeared in The Edge Financial Daily, July 14, 2011.
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