• We maintain our HOLD rating on Digi.Com with unchanged forecasts and DCF-based fair value of RM4.95/share, which implies an FY17F EV/EBITDA of 13x, the stock’s 2-year average.

• Digi has announced four Freedom propositions - Music, Video, Gaming and Roaming for its customers.

• For Music, Digi is raising the monthly music streaming quota from 1GB to 5GB for all postpaid and prepaid customers who have been with the company for at least six months for a range of the most popular and widely used streaming services such as Spotify, Joox and Smule.

• With Video, Digi is bringing premium content beginning with Viu wherein customers can buy 5GB video streaming quota to access and watch premium TV series and movies for RM5 a month.

• Gaming Freedom provides an easier purchasing option via Digi accounts for in-game items from Steam and Garena game titles, covering League of Legends, Dota 2, Counter-Strike and FIFA. Currently, payments are made via credit, debit cards or retail stores.

• Roaming Freedom maintains its internet roaming charges and passes, which are comparable with U Mobile’s options priced at RM36/day for selected countries vs RM38/day for Maxis and Celcom.

• Given the need to constantly offer more attractive value propositions to consumers, we continue to view management’s guidance for a flat YoY FY17F service revenue as increasingly difficult given the unabated competition amongst cellular operators (celco).

• Recall that Digi registered a 1QFY17 service revenue decline of 6% YoY but still hoped that continued accretion of higher margin customers could offset the impact from the declining low value segment.

• Last month, Digi Postpaid 50 Internet Lite was introduced, offering 3GB of data and 7GB for Facebook/YouTube applications together with unlimited voice option at only RM50/month as a direct competition to U Mobile’s unlimited voice package at RM38/month which currently offers 4GB of data and unlimited for MusicOnz, ApOnz and Waze applications.

• For further comparison, Celcom’s First Gold postpaid plan, priced at RM80/month, offers a combined 20GB data (including 10GB for weekends). Meanwhile, Maxis One's unlimited voice option offers 20GB (including 10GB for weekends) at RM98/month, the highest amongst its peers.

• The stock currently trades at a fair FY17F EV/EBITDA of 13x, comparable to its 2-year average. Given the highly competitive landscape, we expect Digi’s subscriber growth and ARPUs to remain under pressure as both Maxis and Celcom are already aggressively improving 4G coverage and service quality.

Source: AmInvest Research - 22 Jun 2017