KUALA LUMPUR (Nov 16): DiGi.Com Bhd slipped 0.64% at mid-morning today after a research house raised a red flag that the stock could be excluded from the upcoming Shariah-compliant review by Securities Commission Malaysia (SC).

At 10.01am, DiGi fell 3 sen to RM4.69 with 864,400 shares traded.

Hong Leong IB Research had this morning maintained its "Hold" rating on DiGi at RM4.72 with an unchanged target price of RM4.50 and said that in the upcoming Shariah-compliant review by SC, there is a possibility that DiGi will be excluded from the list for failing the debt over asset ratio.

In a note today, the research house said that based on latest (FY16) audited account, DiGi's conventional debt surged to RM2.3 billion for spectrum fees payment.

"Recall that resulting from 900MHz and 1800MHz spectrum reallocation exercise, DiGi opted for one lump sum payment of the one-time fee component amounting to RM598.5 million to MCMC on Nov 1, 2016.

"As a result, its conventional debt over asset ratio increased to 41%, surpassing the threshold of 33% by end of FY16," it said.

The research house said DiGi's RM5 billion Islamic bond facilities (sukuk) were established in 2Q17.

Since then, the financial ratio has reverted to below the threshold at 30%, it added.

"Without any exemption or special treatment, DiGi is likely to be excluded in the upcoming review for failing the ratio mentioned above.

"While this does not have any impact on the fundamentals of the company, the exclusion may exert some selling pressure on the stock.

"Sharp share price correction may provide an opportunity for accumulation as DiGi is still the highest dividend yielding stock in the telco sector, with a decent above 4%.

"Maintain Hold with unchanged DCF-derived TP of RM4.50. Our fair value is derived based on DCF with WACC of 6.0% and TG of 0.5%," it said.