Investment Highlights

• We maintain our HOLD rating on Digi.Com with an unchanged DCF-based fair value of RM4.05/share, derived from a WACC of 6.3% and terminal growth rate of 2%. This implies an FY20F EV/EBITDA of 12x — in line with its 2-year average together with a supportive dividend yield of 4%.

• Digi has streamlined its postpaid plans by discontinuing some packages and revamping them into simplified propositions with only 5 different monthly fee rates and rebates for fibre and device add-ons.

• These plans remove speed caps and reset the lowest package to RM40, which offers 10GB data quota from the earlier RM38 for 9GB. Existing subscribers are offered up to 6 additional family lines at a 50% discount for each line starting from as low as RM20 per month.

• However, Digi has almost removed all unlimited data plans, now offering the highest price range at RM150/month with a data quota of 85GB. However, subscribers who enter into a 24- month contract for this package can secure unlimited data, calls and hotspot quota. Before this repackaging campaign, Digi offered its Infinite plans starting at a lower RM100/month with unlimited data but speeds caps of up to 10Mbps.

• For mobile postpaid plans priced above RM90/month, subscribers are offered a 24-month rebate of RM30/month for the group’s fibre plans and RM15/month rebate for the RM60/month plan.

• These plans also allow users to choose free add-ons such as rebates on Google Play and Apple App Store, extra Internet quota and mobile broadband. For phone financing plans, the monthly commitment has been lowered to RM60 from RM90 per month.

• In our view, these plans will still face stiff competition from U Mobile’s RM40 postpaid package which offers unlimited data and 5GB hotspot. U Mobile’s RM30 prepaid plan remains highly attractive, offering unlimited data with tolerable speed cap of 6Mbps and hotspot quota of 6GB. Its RM35/month option includes unlimited calls while doubling hotspot quota to 12GB. Given U Mobile’s improving service quality and connectivity, the company is currently the nearest rival to Digi’s affordable market proposition.

• Hence, we maintain our forecasts as we do not expect Digi’s new postpaid permutations to make any significant changes in the trajectory of declining data yields unless some form of consolidation occurs amongst the players.

• Amid declining EBITDA and higher capex expectations against the backdrop of 5G rollout programmes, the stock currently trades at a fair FY21F EV/EBITDA of 12x – at parity to its 2-year average with decent dividend yields of 4%.

Source: AmInvest Research - 24 Feb 2021