DiGi.Com Bhd (Dec 2, RM3.73)
Downgrade to hold at RM3.60 with target price of RM3.46: We are downgrading our call on DiGi.Com Bhd to a “hold” following a very successful “buy” call in October. Since then, the stock has surged by some 16% and outperformed the KLCI by 15%. Given a lack of further catalysts other than the stock split that occurred post-upgrade, and the fact that recent results by all the telcos suggest the Malaysia telco market is in the grind phase as it combats declining voice revenue and slowing data growth, we would prefer to take the money first. Switch to Telekom Malaysia Bhd. Our earned value-based target price of RM3.46 is maintained.
Interest in the stock has been stoked by the group’s capital management plans, while fundamentally the group has continued to display strong defensive qualities. Its 10-for-one share split that took effect on Nov 24, has also attracted much retail interest with the share price reduction from a heady RM30 plus to a more retail palatable RM3 plus. DiGi’s foreign shareholding has moved up since the beginning of the year (11.9% as at end-October against 9% as at end-January).
At the current level, DiGi has the honour of heading up the rich territory in our basket of telcos under coverage. At the current share price, it is trading at 24 times FY12 earnings. Admittedly, earnings are skewed by its policy of accelerating the depreciation of its old 2G network as it swaps out to a new network capable of HSPA+ and LTE. But even if we add back an estimated RM500 million to RM550 million to FY12 earnings, its price-earnings ratio will still be around 20 times.
Following the last round of capital distribution (6.5 sen per share raised from subsidiary Digitel’s share premium account to the listco), there is the possibility of another 8.9 sen per share (RM692 million) in its own share premium account that could be distributed. However, DiGi will need to go through a legal process to get this transferred to distributable reserves before it can pay it out. Management has remained tight-lipped on what it intends to do and when. We fear it may not be so soon after the last round. — Maybank IB Research, Dec 2
This article appeared in The Edge Financial Daily, December 5, 2011.
Downgrade to hold at RM3.60 with target price of RM3.46: We are downgrading our call on DiGi.Com Bhd to a “hold” following a very successful “buy” call in October. Since then, the stock has surged by some 16% and outperformed the KLCI by 15%. Given a lack of further catalysts other than the stock split that occurred post-upgrade, and the fact that recent results by all the telcos suggest the Malaysia telco market is in the grind phase as it combats declining voice revenue and slowing data growth, we would prefer to take the money first. Switch to Telekom Malaysia Bhd. Our earned value-based target price of RM3.46 is maintained.
Interest in the stock has been stoked by the group’s capital management plans, while fundamentally the group has continued to display strong defensive qualities. Its 10-for-one share split that took effect on Nov 24, has also attracted much retail interest with the share price reduction from a heady RM30 plus to a more retail palatable RM3 plus. DiGi’s foreign shareholding has moved up since the beginning of the year (11.9% as at end-October against 9% as at end-January).
At the current level, DiGi has the honour of heading up the rich territory in our basket of telcos under coverage. At the current share price, it is trading at 24 times FY12 earnings. Admittedly, earnings are skewed by its policy of accelerating the depreciation of its old 2G network as it swaps out to a new network capable of HSPA+ and LTE. But even if we add back an estimated RM500 million to RM550 million to FY12 earnings, its price-earnings ratio will still be around 20 times.
Following the last round of capital distribution (6.5 sen per share raised from subsidiary Digitel’s share premium account to the listco), there is the possibility of another 8.9 sen per share (RM692 million) in its own share premium account that could be distributed. However, DiGi will need to go through a legal process to get this transferred to distributable reserves before it can pay it out. Management has remained tight-lipped on what it intends to do and when. We fear it may not be so soon after the last round. — Maybank IB Research, Dec 2
This article appeared in The Edge Financial Daily, December 5, 2011.
