This article first appeared in The Edge Financial Daily on September 19, 2019

DiGi.Com Bhd
(Sept 18, RM4.78)
Maintain hold with an unchanged fair value of RM4.80: We attended DiGi.Com Bhd’s third Sustainability Day on Tuesday with the theme “Sustainability by Design: Practical steps for Malaysian Businesses” which aims to strengthen its brand and customer loyalty, with a strong focus on the emerging affluent youth.

The speakers emphasised the increasing importance of millennials’ awareness and appreciation of environmental, ethical and integrity issues which shape their spending patterns, employment preferences and digital experiences.

The need for business sustainability to be anchored in the changing cultural youth dynamics and expectations resonated at the conference.

This is further reinforced by increasing corporate liability implications under the Malaysian Anti-Corruption Commission (Amendment) Act 2018 arising from employees’ illegal actions.

The conference speakers advocated a continuing policy to inculcate a business which can adapt and deliver changes in mindset and cultural and environmental priorities.

DiGi, through its Yellow Heart initiative, seeks to distinguish itself from its peers, supported by a supply chain sustainability policy for its vendors and contractors.

The group has developed a real-time permit-to-work application which monitors supplier approval, risk and conduct with an aim to reach 60% autopilot processes. This is supported by existing applications such as mobile sales agent MyDiGi and myDiGialSME to provide immediate information and response to its customers.

We view these strategies in penetrating a larger market share in the youth segment as part of DiGi’s wider efforts to expand its revenue base.

On a quarter-on-quarter (q-o-q) comparison, DiGi’s second quarter ended June 30, 2019 (2QFY19) subscribers rose 113,000 from gains in both prepaid and post-paid segments, leading to a pause in the consecutive prepaid declines since 3QFY18.

However, the group’s priorities in driving prepaid to post-paid conversions resulted in the higher value postpaid subscribers increasing by 71,000 versus prepaid’s 42,000 in 2QFY19.

The shift from prepaid subscribers has caused postpaid’s share of group revenue to rise to 46% from 41% in 2QFY18.

The stock currently trades at an undemanding financial year ending Dec 30, 2020 enterprise value over earnings before interest, taxes, depreciation and amortisation of 12 times, at parity to its two-year average with decent dividend yields of 4%. — AmInvestment Bank, Sept 18