DiGi.Com Bhd (Jan 13, RM3.90)
Maintain neutral at RM3.92 with revised target price of RM3.70 (from RM3.40): DiGi.Com Bhd is expected to release its 4QFY11 results on Thursday. We expect the company to register FY11 net profit of RM1.13 billion, a decline of 4.2% year-on-year (y-o-y). The decline in earnings growth will be due to DiGi’s accelerated depreciation policy for FY11 and FY12. However, we are not ruling out an upside surprise to this estimate due to the possible increase in usage during the year-end holiday period.
Nevertheless, we expect DiGi to register better normalised net profit growth of 7.2% y-o-y. We derive the normalised earnings by discounting the accelerated depreciation. Hence, its FY11 operating expenses will only rise by 5.8% y-o-y to RM4.03 billion instead of the 10.6% y-o-y growth to RM4.22 billion on a non-normalised basis.
We expect DiGi’s full-year revenue to grow by 4.5% y-o-y to hit RM5.65 billion as the data revenue momentum continues due to the expected increase in usage. We expect the continuation of the double digit growth trend in data revenue seen in previous quarters particularly in the mobile Internet and broadband segment. Therefore, we will not be surprised should data revenue contribution surpass the 30% mark in 4QFY11. The data revenue contribution was 29.4% in 3QFY11.
Operationally, we opine that DiGi will show some earnings before interest, tax, depreciation and amortisation (Ebitda) margin pressure as we expect Ebitda growth to be marginally flat 0.7% y-o-y to RM2.42 billion. However, Ebitda margin will still be stable at around 43% to 44%.
We are not expecting DiGi to announce any special dividend or capital distribution for FY11. We understand that the capital distribution will be from FY12. However, taking a cue from previous actions, there is a possibility that DiGi will announce a dividend in 4QFY11. We expect dividend yield to reach 3.7% in FY11, based on its current price.
Pending the 4QFY11 results, we are maintaining our FY11 forecast for now. We continue to like DiGi for its strong operations, its commitment to reward its shareholders and as a good defensive stock. However, we believe that the valuation for DiGi is currently stretched. It is trading at a forward price-earnings ratio of 25 times compared with its regional peers’ 16.7 times PER. Hence, we maintain our “neutral” recommendation despite our positive view on DiGi. We revise our target price to RM3.70 (from RM3.40) as we assign a lower weighted average cost of capital (WACC) of 9.04% (from 9.45%) to our discounted dividend model. We believe that the lowered WACC is justified due to DiGi’s low risk profile as it operates in a stable environment. — MIDF Research, Jan 13
This article appeared in The Edge Financial Daily, January 16, 2012.
Maintain neutral at RM3.92 with revised target price of RM3.70 (from RM3.40): DiGi.Com Bhd is expected to release its 4QFY11 results on Thursday. We expect the company to register FY11 net profit of RM1.13 billion, a decline of 4.2% year-on-year (y-o-y). The decline in earnings growth will be due to DiGi’s accelerated depreciation policy for FY11 and FY12. However, we are not ruling out an upside surprise to this estimate due to the possible increase in usage during the year-end holiday period.
Nevertheless, we expect DiGi to register better normalised net profit growth of 7.2% y-o-y. We derive the normalised earnings by discounting the accelerated depreciation. Hence, its FY11 operating expenses will only rise by 5.8% y-o-y to RM4.03 billion instead of the 10.6% y-o-y growth to RM4.22 billion on a non-normalised basis.
We expect DiGi’s full-year revenue to grow by 4.5% y-o-y to hit RM5.65 billion as the data revenue momentum continues due to the expected increase in usage. We expect the continuation of the double digit growth trend in data revenue seen in previous quarters particularly in the mobile Internet and broadband segment. Therefore, we will not be surprised should data revenue contribution surpass the 30% mark in 4QFY11. The data revenue contribution was 29.4% in 3QFY11.
Operationally, we opine that DiGi will show some earnings before interest, tax, depreciation and amortisation (Ebitda) margin pressure as we expect Ebitda growth to be marginally flat 0.7% y-o-y to RM2.42 billion. However, Ebitda margin will still be stable at around 43% to 44%.
We are not expecting DiGi to announce any special dividend or capital distribution for FY11. We understand that the capital distribution will be from FY12. However, taking a cue from previous actions, there is a possibility that DiGi will announce a dividend in 4QFY11. We expect dividend yield to reach 3.7% in FY11, based on its current price.
Pending the 4QFY11 results, we are maintaining our FY11 forecast for now. We continue to like DiGi for its strong operations, its commitment to reward its shareholders and as a good defensive stock. However, we believe that the valuation for DiGi is currently stretched. It is trading at a forward price-earnings ratio of 25 times compared with its regional peers’ 16.7 times PER. Hence, we maintain our “neutral” recommendation despite our positive view on DiGi. We revise our target price to RM3.70 (from RM3.40) as we assign a lower weighted average cost of capital (WACC) of 9.04% (from 9.45%) to our discounted dividend model. We believe that the lowered WACC is justified due to DiGi’s low risk profile as it operates in a stable environment. — MIDF Research, Jan 13
This article appeared in The Edge Financial Daily, January 16, 2012.
