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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 27 Nov 2020, 11:04 AM

 

Digi.com - Attractive Yield and Valuation

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DiGi is our preferred pick in the telco space given its relatively resilient earnings and above-average dividend yield of 4%. While we are forecasting FY20F earnings to fall by 5.3% YoY (FY21F: -1.5% YoY), we believe we have seen the bottom in 2QFY20 and expect better performance in 2H20. The restrictions imposed on foreign workers should affect DiGi’s prepaid subscriber base but thanks to the offering of affordable prepaid plans during the lockdown period, new registration by locals have helped to cushion the impact of fewer migrant subscribers. We believe the recent selldown on DiGi shares presents a good opportunity to accumulate. Trading at 23x FY21F EPS with an upside potential of 20% to our TP of RM4.75, we upgrade DiGi from Neutral to Outperform.

  • Remaining resilient despite the adverse impact of Covid-19. During the 2Q20 reporting season, we have seen most telcos delivering weaker performance mainly due to the lockdown period which had resulted in the closure of physical channels and operations, limiting customer acquisition and growth in business volume. Although DiGi’s data consumption expanded by about 50% as people were working from home, weaker data monetization owing to the industry-wide free data giveaway had led to lower revenue. DiGi saw its 2QFY20 net profit falling by 27% YoY but this came in largely within expectations as peers delivered weaker-than-expected performances. We believe the worst is over and expect DiGi to post QoQ improvement in earnings considering the resumption of businesses following the lifting of lockdown. We forecast DiGi’s FY20F earnings to drop by 5.3% YoY, which is fairly resilient given the economic damages caused by the pandemic.
  • Fibre network expansion to continue. DiGi continues to invest in modernizing and expanding its 4G coverage network. Thus far, it has achieved a population coverage of 91% and 74% for 4G and LTE respectively. Currently, it has 9,740km fibre network with 80% of sites already connected via fibre. DiGi has established collaborations with Celcom, Telekom Malaysia (TM) and Time dotCom to expand its fixed broadband footprint, provide connectivity for business solutions, wholesale and fibre to home. This has enabled DiGi to scale up and offer attractive bundles to customers. For 5G, DiGi has partnered with TM and ZTE to achieve synergies and ensure readiness in rolling out the new technology once spectrum is made available.
  • Our preferred pick due to its stable earnings and attractive yield. In our universe of coverage, DiGi provides the highest dividend yield of c.4% (sector’s average: c.3%). We believe this is sustainable as DiGi’s revenue stream is relatively more stable while cost optimization has always been a key focus of the group. Share price has fallen sharply and we attribute this to the pricing in of weak 2QFY20 results as well as rebalancing of funds at month end. Given a 20% upside to our TP of RM4.75, we upgrade DiGi from Neutral to Outperform.

Source: PublicInvest Research - 1 Sept 2020

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Labels: DIGI

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Chart Stock Name Last Change Volume 
DIGI 4.17 +0.01 (0.24%) 5,122,800 

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