DiGi.Com Bhd (Oct 25, RM31.62)
Maintain neutral with revised fair value of RM31.10 from RM28.60: DiGi continued to experience strong data growth and commendable expansion in voice revenue, aided by the Hari Raya Aidilfitri celebrations. The 9MFY11 results were slightly ahead of our expectations, prompting us to tweak upwards our FY11/FY12 earnings forecast by 1% to 4%.
This bumps up our fair value on the stock to RM31.10 (from RM28.60) based on 5.5 times FY12 enterprise value over earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and 9.5% weighted average cost of capital (including the 65 sen capital distribution to be paid in 1H12). DiGi is our preferred Malaysian telco dividend pick alongside Telekom Malaysia Bhd.
At 81%, 76% and 75% of our estimates, consensus core earnings (excluding the one-off early medium-term notes (MTN) redemption charge in 2QFY11 of RM16.6 million) and revenue forecasts, DiGi’s results slightly beat our expectation but were in line with street forecasts. The key takeaways were: (i) the continuing strong voice revenue growth of 2% quarter-on-quarter (+2.8% q-o-q in 2QFY11), supported by steady RPM and a higher subs base (+3.5% q-o-q); and (ii) robust 40.4% year-on-year (y-o-y) growth (+10.4% q-o-q) in non-voice revenue, raising data revenue contribution to 30% of mobile revenue (28% in 2QFY11) as DiGi benefited from the aggressive promotions of its mobile internet plans.
Ebitda margin widened 80bps q-o-q to a record 46.6%, bringing year-to-date (YTD) margin to 46.1%, ahead of our FY11 forecast of 44.8%. An expected 100% payout from net profit translates into an interim dividend of 37 sen per share, payable on Dec 8. (YTD dividends per share (DPS): RM1.10).
DiGi expects to capture a bigger slice of the mobile broadband market by narrowing its coverage gap (currently 50%) with that of its competitors (80%) and with progressively stronger smartphone take-up (currently 18% of its subs base). It estimates smartphone penetration in Malaysia at about 20% and sees that some 40% of handsets sold in 2011 will be smartphones. We contrast this with Singapore, which has a significantly higher smartphone penetration of more than 50% (80% of handsets sold are smartphones).
Management expects the outcome of the re-farming of the 900Mhz spectrum to be known within the next six to 12 months and is awaiting a directive from the telco regulator.
DiGi is back loading RM100 million of FY11 capital expenditure to FY12 due to the delays in the commencement of its network swap under the two-year network modernisation exercise. This results in a lowered capex guidance of RM550 million (against RM650 million) for FY11 while capex for FY12 is raised to RM800 million from RM700 million. The high single digit revenue growth guidance has been maintained, implying a more tepid revenue growth of 6% to 8% y-o-y in 4QFY11 given the higher base of smartphone sales in 4Q10. Given the stronger results, we raise our core profit forecast for FY11 by 4% and for FY12 by 1%, after modelling in a stronger Ebitda margin for the respective years. — OSK Research, Oct 25
This article appeared in The Edge Financial Daily, October 27, 2011.
Maintain neutral with revised fair value of RM31.10 from RM28.60: DiGi continued to experience strong data growth and commendable expansion in voice revenue, aided by the Hari Raya Aidilfitri celebrations. The 9MFY11 results were slightly ahead of our expectations, prompting us to tweak upwards our FY11/FY12 earnings forecast by 1% to 4%.
This bumps up our fair value on the stock to RM31.10 (from RM28.60) based on 5.5 times FY12 enterprise value over earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and 9.5% weighted average cost of capital (including the 65 sen capital distribution to be paid in 1H12). DiGi is our preferred Malaysian telco dividend pick alongside Telekom Malaysia Bhd.
At 81%, 76% and 75% of our estimates, consensus core earnings (excluding the one-off early medium-term notes (MTN) redemption charge in 2QFY11 of RM16.6 million) and revenue forecasts, DiGi’s results slightly beat our expectation but were in line with street forecasts. The key takeaways were: (i) the continuing strong voice revenue growth of 2% quarter-on-quarter (+2.8% q-o-q in 2QFY11), supported by steady RPM and a higher subs base (+3.5% q-o-q); and (ii) robust 40.4% year-on-year (y-o-y) growth (+10.4% q-o-q) in non-voice revenue, raising data revenue contribution to 30% of mobile revenue (28% in 2QFY11) as DiGi benefited from the aggressive promotions of its mobile internet plans.
Ebitda margin widened 80bps q-o-q to a record 46.6%, bringing year-to-date (YTD) margin to 46.1%, ahead of our FY11 forecast of 44.8%. An expected 100% payout from net profit translates into an interim dividend of 37 sen per share, payable on Dec 8. (YTD dividends per share (DPS): RM1.10).
DiGi expects to capture a bigger slice of the mobile broadband market by narrowing its coverage gap (currently 50%) with that of its competitors (80%) and with progressively stronger smartphone take-up (currently 18% of its subs base). It estimates smartphone penetration in Malaysia at about 20% and sees that some 40% of handsets sold in 2011 will be smartphones. We contrast this with Singapore, which has a significantly higher smartphone penetration of more than 50% (80% of handsets sold are smartphones).
Management expects the outcome of the re-farming of the 900Mhz spectrum to be known within the next six to 12 months and is awaiting a directive from the telco regulator.
DiGi is back loading RM100 million of FY11 capital expenditure to FY12 due to the delays in the commencement of its network swap under the two-year network modernisation exercise. This results in a lowered capex guidance of RM550 million (against RM650 million) for FY11 while capex for FY12 is raised to RM800 million from RM700 million. The high single digit revenue growth guidance has been maintained, implying a more tepid revenue growth of 6% to 8% y-o-y in 4QFY11 given the higher base of smartphone sales in 4Q10. Given the stronger results, we raise our core profit forecast for FY11 by 4% and for FY12 by 1%, after modelling in a stronger Ebitda margin for the respective years. — OSK Research, Oct 25
This article appeared in The Edge Financial Daily, October 27, 2011.
