Investment Highlights

• We maintain our HOLD rating on Digi.Com with an unchanged DCF-based fair value of RM4.42/share based on a WACC of 7.3% and terminal growth rate of 2%, which implies an FY19F EV/EBITDA of 12x, slightly below its 2-year average of 13x.

• Digi has launched a pilot fibre broadband service in selected areas in the Klang Valley, offering a 50Mbps fibre plan for RM99/month and 100Mbps plan for RM129/month.

• We understand that this service, utilizing TM’s High Speed Broadband network, currently covers residential areas in Bandar Sunway, Bangi, Kajang, Rawang, Shah Alam and Subang.

• Both plans involve unlimited quota and a RM250 router, and require a 24-month contract. However, Digi’s plans exclude a voice option and DECT phone.

• This follows Digi’s launch of its pilot fibre project in Jasin, Melaka using Tenaga Nasional’s broadband infrastructure late last year.

• These plans compare favourably with Maxis’ RM89/month for 30Mbps and RM129/month for RM100Mbps vs. Unifi’s RM79/month for 30Mbps which is restricted to 60Gb quota, RM129/month for 100Mbps and RM199/month for 300Mbps.

• For unlimited voice calls, Maxis requires a RM10/month topup while Unifi imposes RM20/month.

• Meanwhile, Time dotCom offers RM99/month for 100Mbps, RM139/month for 500Mbps and RM199/month for 1Gbps for high-rise multi-dwelling units and commercial segments in selected areas. Voice calls are imposed RM2.50/month for 30 minutes and RM10/month for 300 minutes.

• As Digi is still exploring whether this fibre service could be viable on a recurring basis, we understand marketing costs may be minimal. Hence, we maintain our FY19F–FY21F earnings, which are currently 6%-9% below consensus.

• Our forecasts are conservative vs. management’s FY19F guidance of a flat service revenue and low single-digit EBITDA growth given that Digi’s 1QFY19 service revenue has declined by 5% YoY while its subscriber base has contracted by 509K (-4%) YoY from the loss of prepaid users.

• The stock currently trades at a fair FY19F EV/EBITDA of 12x, which is slightly below its 2-year average of 13x amid a highly competitive landscape as subscriber growth and ARPUs remain under pressure.

Source: AmInvest Research - 26 Apr 2019