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 announced a business fibre broadband plan for micro, small and medium enterprises (SME) bundled with cellular services. Starting at RM130/month for speeds of up to 100Mbps, it allows add-on unlimited postpaid data plans for up to 5 mobile lines.

• For the 300Mbps fibre plan priced at RM188/month, the unlimited mobile data is available for up to 10 mobile lines. The 500Mbps fibre plan at RM248/month offers 10 unlimited mobile lines while the 800Mbps fibre plan at RM318/month offers up to 15 mobile lines. The 100Mbps and 300Mbps plans only provide 50Mbps upload speeds while the 500Mbps option is limited to uploads at 100Mbps and the highest 800Mbps plan at uploads of 200Mbps.

• As a comparison, Unifi and Maxis offer business fibre plans at speeds of 100Mbps with a slight RM9/month premium at RM139/month, while the highest 800Mbps plan is RM31/month pricier at RM349/month. Also, neither Maxis nor Unifi offers unlimited cellular plans bundled with business fibre at this juncture. However, Maxis has a more affordable RM99/month business fibre plan for speeds up to 30Mbps while Unifi does not offer this cheaper option for business.

• We note that this plan comes after Digi launched 2 fibre home broadband plans for download speeds of 50Mbps priced at RM90/month and 800Mbps priced at RM270/month on 24-month contracts last month. This was in addition to fibre home packages for download speeds of 100Mbps priced at RM130/month, 500Mbps at RM190/month and 1Gbps at RM290/month.

• Additionally, bundling the home fibre plans priced at and above RM130/month will allow 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.

• While this new proposition is likely to draw the attention of SMEs, we do not discount both Maxis and Unifi offering similar bundling packages for the business community in the near term to defend their market share. Also, Maxis’ mobile connectivity is still acknowledged to be better than Digi’s, which started this fibre venture late in the competition which has already been entrenched by Unifi, Maxis and Time dotCom.

• Hence, we do not expect this new bundling plan to make any significant change in an increasingly competitive celco landscape. 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 Nov 2020