(Sept 8, RM5.18)
Upgrade to hold with a higher target price of RM5.15: DiGi.Com Bhd’s hosted its Investor Day on Monday afternoon.
The key takeaways are: i) Competition remains intense so far into the third quarter ending Sept 30, 2015 (3Q15); ii) The steep depreciation of the ringgit will put some pressure on margins; and iii) DiGi will continue to focus on its long-term evolution (LTE) network roll-out with coverage targeted at 45% and 75% by end-financial year 2015 (FY15) and end-FY17 respectively, supported by the expansion of its fibre network to 10,000km by 2017.
3Q15 remains a challenging quarter for DiGi, given the intense competition, weak consumer sentiment and ringgit depreciation.
Also, Packet One Networks (M) Sdn Bhd may launch its LTE services by year end, and offer nationwide mobile coverage, posing a risk to DiGi’s medium-term earnings.
We see a challenging second half and little catalyst for DiGi’s share price. Nevertheless, we have upgraded DiGi from “reduce” to “hold” as its share price has fallen 14% year to date.
DiGi’s FY16 enterprise value/operating free cash flow of 16.9 times is at 18% and 30% premium to its Malaysian and regional telco peers respectively, but the share price should be supported by its decent 4.8% to 4.9% dividend yield in FY15 to FY17. — CIMB Research, Sept 8
This article first appeared in digitaledge Daily, on September 9, 2015.