DiGi.com Bhd
GIVEN the prevailing market uncertainties, what with the weakening ringgit and ongoing commodities rout, we are highlighting DiGi.com (Fundamental: 1.35/3, Valuation: 1.5/3) as a defensive option with higher than market average yields for investors with lower risk appetite.

DiGi the third-largest provider of telecommunications services in Malaysia after Maxis and Celcom. 

As the smallest of the three, the company has grown much faster than its peers over the past 5 years - gaining market share. Revenue and net profit grew at compounded annual rates of 7.4% and 15.2%, respectively, underpinned by double-digit growth in data revenue. 

DiGi has a track record of returning excess cash to shareholders. Steady cashflow from operations has enabled it to distribute more than 90% of net profit as dividends since 2010. Payout exceeded 100% in 2010-2012, on the back of the company's capital management initiatives.

Dividends totalled 26 sen for 2014, translating to an above-market yield of 4.9%. Its shares will trade ex-entitlement for a second interim dividend of 5.9 sen on August 5 - bringing total dividends for 1H2015 to 12 sen per share. 

Earnings for 1H2015 were hurt by intense price competition and the dampening effects of GST. We expect price competition to persist in 2H2015 but GST impact should gradually moderate. Despite the headwinds, we take comfort in DiGi's continual ability to increase subscriber base, with 2Q2015 net additions of 124,000, and stable service revenue.  

Going forward, growth will continue to be driven by data monetization, particularly from prepaid customers with low Internet adoption rate of 54.7% vis-a-vis postpaid's 76.3%. 

To support growth, DiGi spent RM200 million beefing up its 4G-LTE network, which currently covers 35% of the population - comparable to Maxis' 41% and higher than Celcom's 15%. The company is targeting population coverage of 50% by end-2015. 

After the recent selldown, which left DiGi shares trading at 1-year low, trailing 12-month P/E is 21.2 times - lower than Maxis and Axiata's 30.2 times and 24.5 times, respectively.