• 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%.

• In conjunction with its 11.11 promotion, Digi has introduced two prepaid options on a limited time campaign that have no speed restrictions starting from RM30/month.

• The RM30 plan offers unlimited calls to all networks and 20GB of data with no speed caps. This can be topped up with RM5 for a RM35 plan that offers 40GB of high-speed data.

• In addition, Digi also offers data plan boosters with top ups of RM3 for 1.5GB or RM10 for 10GB of data. The plan boosters will follow your monthly plan validity.

• Under the current campaign, subscribers can get an extra RM11 rebate by activating the plan from 11 to 21 November 2020.

• In our view, these new plans offer better value compared to Digi’s current RM35 Chili Padi package which offers only 9GB/month of uncapped speeds with unlimited access to Facebook, Twitter and Instagram.

• Nevertheless, Digi RM15/month package with a quota of 3GB remains attractive for entry-level and migrant users, notwithstanding average data usage is currently much higher at 17.4GB/month.

• Even so, these plans could still face stiff competition from U Mobile’s RM30 prepaid package which offers unlimited data and 6GB hotspot with speed cap of 6Mbps. Its RM35/month option includes unlimited calls.

• Even U Mobile’s RM40/month postpaid plan which offers unlimited data and calls appears attractive compared to Digi’s prepaid options.

• Given U Mobile’s improving service quality and connectivity, the company is currently the nearest rival to Digi’s affordable market proposition.

• As such, we expect fresh offerings, likely in the postpaid category, following this campaign, which closely follows Digi’s recent bundling home fibre plans priced from RM130/month with unlimited postpaid plans for an additional RM60/month.

• Nevertheless, given contracting data yields across the sector, we do not expect these new prepaid options to make any significant change in the trajectory of 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 yield of 4%.

Source: AmInvest Research - 12 Nov 2020