Investment Highlights

• We retain our HOLD rating on Digi.Com with unchanged forecasts and DCF-based fair value of RM4.40/share. This is based on a WACC of 6.3% and terminal growth rate of 2%, which implies an FY20F EV/EBITDA of 12x — in line with its 2-year average together with a supportive dividend yield of 4%.

• Digi has announced 2 new fibre broadband plans for download speeds of 50Mbps priced at RM90/month and 800Mbps priced at RM270/month on 24-month contracts.

• Currently, Digi offers packages for download speeds of 100Mbps priced at RM130/month, 500Mbps at RM190/month and 1Gbps at RM290/month.

• Additionally, bundling the fibre plans priced at and above RM130/month will allow subscribers to enjoy unlimited postpaid plans priced at an additional RM60/month.

• This can be shared with 2 lines for the fibre plans priced at RM130/month, 3 lines for RM190/month and 4 lines for above RM270/month. This appears to be Digi’s only offer for unlimited mobile internet, as currently even the highest priced postpaid plan at RM190/month offers an expanded quota of 200GB data with unlimited calls.

• In our view, this seems to be addressing Maxis’ bundling challenge which offers Home Fibre plans at RM89/month and unlimited data for postpaid at RM98/month which have been in the market for almost 2 years.

• However, Digi's offer for unlimited mobile data at RM60/month may not excite the market given that U Mobile has already been offering unlimited postpaid mobile data and calls at RM40/month and unlimited prepaid data at RM30/month with speed caps at 6Mbps for a year. Additionally, Celcom is now offering fibre plans priced lower at RM80/month with download and upload speeds of up to 30Mbps.

• Recall that Digi has signed a memorandum of understanding with Maxis and Celcom to collaborate on fibre-to-base stations to optimise capex efficiencies. Digi also has a partnership with TM Global for West-East Malaysia submarine cable system and mobile backhaul.

• Digi aims to leverage its partnerships to provide fixed broadband solutions by riding on Time dotCom and TM's fibre networks to tap into 3.7mil households nationwide. Digi aims to market this service by scaling up and extending postpaid bundle offerings for home and on-the-go connectivity.

• Even so, we do not expect this new bundling plan to make any significant headway in an increasingly competitive celco landscape. Hence, the stock currently trades at a fair FY21F EV/EBITDA of 11x – slightly below its 2-year average of 12x with decent dividend yields of 4%.

Source: AmInvest Research - 5 Oct 2020