This article first appeared in The Edge Financial Daily on October 30, 2019
DiGi.Com Bhd
(Oct 29, RM4.74)
Maintain hold with an unchanged target price (TP) of RM4.55: DiGi.Com Bhd’s (DiGi) service revenue from the non-Internet segment declined 21% year-on-year for the nine months of financial year 2019 (9MFY19) due to a shift in consumer trends and lower interconnect rate revisions.
The Internet and digital segment now accounts for 63% of DiGi’s 9M service revenue.
To drive the mobile Internet business, DiGi is offering on-demand Internet passes, segment-focused offers, borderless roaming and family, a personalised Box of Surprise and entry-level device and phone programmes.
Its top digital products and services are MyDiGi with 3.6 million monthly active users, EasyAdd — managing entertainment and lifestyle subscriptions, and Republic GG — a gaming credit reload service.
DiGi has also identified the small and medium enterprise (SME) segment as a growth engine. DiGi has launched several digital solutions for the SME segment, including Omni a virtual private branch exchange for SMEs, iFleet for vehicle tracking and management, and altHR, a digital human resources solution.
For now, its revenue contribution from the enterprise or SME segment is still small, but we expect DiGi to actively grow this segment in 2020 to 2021.
DiGi’s 4G network has a 90% population coverage and its 4G+ network covers 70% of Malaysia’s population. The group focuses on data-driven analyses to help deploy its network according to customers’ needs.
With a broad population coverage, DiGi now places greater emphasis on expanding 4G areas and improving quality and efficiency for the existing sites.
The management also aims to deliver fibre capabilities through industry collaborations — DiGi shares some backhaul fibre networks with Celcom and collaborates with TM Global on the inter-region submarine cable system and mobile backhaul.
The management is taking a “gradual and phased approach” to grow its home broadband business.
All in, we maintained our earnings forecasts, “hold” rating and discounted cash flow-derived TP of RM4.55.
At 25 times FY20 estimated price-earnings ratio (PER), DiGi shares are trading at their past five-year average PER, which looks fair. — Affin Hwang Capital, Oct 29