DiGi.Com Bhd (Oct 19, RM31.76)
Maintain buy at RM31.90 with target price of RM34: DiGi is expected to release its 3QFY11 results in the coming week. We are expecting 9MFY11 earnings to come in at 75% to 77% of our full-year estimates or RM846 million to RM868.5 million, translating into growth of 0.0% year-on-year for the nine months and 2.7% y-o-y for the full year.
We are not worried by the flattish to marginal growth as it will be due to the accelerated depreciation seen in 2QFY11. Hence, we are expecting a 3.8% y-o-y decline to RM278.3 million in its 3QFY11 earnings.
We are not concerned by DiGi’s decision to accelerate depreciation of its network assets. In 2QFY11 the accelerated depreciation totalled RM145.5 million in regard to the future de-commissioning of existing network assets, in anticipation of the ongoing network modernisation as well as infrastructure sharing arrangement with Celcom Axiata Bhd. We believe that DiGi accelerating its depreciation is a good move as this may lead to possibly lower depreciation charges in the future and subsequently higher dividends.
We expect DiGi’s 9MFY11 revenue to hit RM4.3 billion, or a growth of 7.9% y-o-y. For 3QFY11, we expect revenue to grow by 3.2% y-o-y to RM1.4 billion. The strong revenue will ride strong data revenue momentum which we believe will see double digit growth in all its segments, particularly mobile Internet and broadband. We opine that data revenue will be driven by the festive season in 3QFY11.
Data revenue contribution will continue improving in 3QFY11, possibly by another 0.5 percentage point to one ppt, translating into a contribution of 28.3% to 28.8% or RM394.6 million to RM401.6 million. We expect that the increase in data revenue will compensate any further decline in voice revenue.
Operationally, we believe DiGi will register another quarter of improvement in its earnings before interest, tax, depreciation and amorisation (Ebitda), where we expect a growth of 5.1%% y-o-y to RM1.4 billion for 9MFY11 coming from improved operating efficiencies.
Pending the 3QFY11 results, we are maintaining our FY11 forecast for now. Taking a cue from previous actions, there is a possibility that DiGi will announce another interim dividend for 3QFY11. We expect dividend yield to reach 4.5% in FY11, based on current price.
We continue to like DiGi as a strong defensive stock with a commitment to reward shareholders and strong operations. It is also one of the stocks that we have identified to outperform during difficult times. Hence, we maintain our “buy” recommendation although the potential upside of 12.5% is lower than our recommendation definition.
Our valuation is based on the discounted dividend model, with an estimated long-term dividend payout ratio of 100% and a weighted average cost of capital of 9.35%. — MIDF Research, Oct 19
Maintain buy at RM31.90 with target price of RM34: DiGi is expected to release its 3QFY11 results in the coming week. We are expecting 9MFY11 earnings to come in at 75% to 77% of our full-year estimates or RM846 million to RM868.5 million, translating into growth of 0.0% year-on-year for the nine months and 2.7% y-o-y for the full year.
We are not worried by the flattish to marginal growth as it will be due to the accelerated depreciation seen in 2QFY11. Hence, we are expecting a 3.8% y-o-y decline to RM278.3 million in its 3QFY11 earnings.
We are not concerned by DiGi’s decision to accelerate depreciation of its network assets. In 2QFY11 the accelerated depreciation totalled RM145.5 million in regard to the future de-commissioning of existing network assets, in anticipation of the ongoing network modernisation as well as infrastructure sharing arrangement with Celcom Axiata Bhd. We believe that DiGi accelerating its depreciation is a good move as this may lead to possibly lower depreciation charges in the future and subsequently higher dividends.
We expect DiGi’s 9MFY11 revenue to hit RM4.3 billion, or a growth of 7.9% y-o-y. For 3QFY11, we expect revenue to grow by 3.2% y-o-y to RM1.4 billion. The strong revenue will ride strong data revenue momentum which we believe will see double digit growth in all its segments, particularly mobile Internet and broadband. We opine that data revenue will be driven by the festive season in 3QFY11.
Data revenue contribution will continue improving in 3QFY11, possibly by another 0.5 percentage point to one ppt, translating into a contribution of 28.3% to 28.8% or RM394.6 million to RM401.6 million. We expect that the increase in data revenue will compensate any further decline in voice revenue.
Operationally, we believe DiGi will register another quarter of improvement in its earnings before interest, tax, depreciation and amorisation (Ebitda), where we expect a growth of 5.1%% y-o-y to RM1.4 billion for 9MFY11 coming from improved operating efficiencies.
Pending the 3QFY11 results, we are maintaining our FY11 forecast for now. Taking a cue from previous actions, there is a possibility that DiGi will announce another interim dividend for 3QFY11. We expect dividend yield to reach 4.5% in FY11, based on current price.
We continue to like DiGi as a strong defensive stock with a commitment to reward shareholders and strong operations. It is also one of the stocks that we have identified to outperform during difficult times. Hence, we maintain our “buy” recommendation although the potential upside of 12.5% is lower than our recommendation definition.
Our valuation is based on the discounted dividend model, with an estimated long-term dividend payout ratio of 100% and a weighted average cost of capital of 9.35%. — MIDF Research, Oct 19
