DiGi.Com Bhd
(March 17, RM6.27)
Maintain hold with unchanged target price of RM6.30: DiGi.Com recently organised an analysts’ day to introduce its new chief executive officer (CEO) and outline its business strategy for 2015. According to sources, DiGi.Com is in the process of tendering a five-year 4G contract, comprising 7,000 long-term evolution (LTE) sites and packet switched core network. 

Should the current vendor fail to defend its incumbency, existing infrastructure is likely to be swapped after only slightly more than one year of operations.

Current chief operating officer Albern Murty will replace Lars-Ake Norling as CEO effective April 1. After eight months at the helm of DiGi.Com, Norling will lead Total Access Communication Pcl, the sister company in Thailand.

Merely three months into 2015, several milestones have been achieved, including (i) the renewal of network facilities providers and network service provider licences for another 10 years; (ii) launching the “Let’s Inspire” brand with a new logo; and (iii) the introduction of a free music streaming service.

DiGi.Com plans to thrive on the strong demand for mobile internet (MI) through: (i) expansion of the high-speed data network to 45% from 35% 4G population coverage by the end of financial year 2015 (FY15); (ii) increased smartphone penetration; (iii) strong demand for digital services and content; (iv) competitively priced MI packages; and (iv) always-on connectivity.

The company is leveraging its cluster-based operating model by breaking regions into districts and further into clusters to have a more granular performance management.

On the spectrum refarming, the regulator is progressing and a decision should be finalised in the second half of 2015. 

However, the company was tight-lipped on the distribution methodology and believes the Malaysian Communications and Multimedia Commission will find a balance between both extremes of auction and beauty contest.

Postpaid data consumption is below 2GB per month while prepaid is probably still below 1GB per month.

Guidance for 2015 indicates low to mid single-digit service revenue growth (considering the impact of new mobile termination rates and of the goods and services tax [GST]) sustaining earnings before interest, taxes, depreciation and amortisation margin of approximately 45% and capital expenditure of RM900 million, similar to the level of FY14.

The risks include: (i) irrational competition; (ii) difficulty in refarming 1800MHz spectrum for LTE; (iii) being unable to monetise data revenue; and (iv) government and regulatory risks.

Positives are: (i) mobile Internet growth; (ii) margin improvements through collaborations or sharing; (iii) capital management via a business trust structure;  (iv) recouping prepaid tax via GST.

Negatives are intense competition from U Mobile, mobile virtual network operators and over-the-top players. — Hong Leong Investment Bank, March 17

This article first appeared in The Edge Financial Daily, on March 18, 2015.