- We raise our fair value to RM6.50/share (from RM6.30/share previously) but downgrade Digi to HOLD from BUY as we think valuations are already rich at the current price and fairly reflect its industry outperformance.
- Digi reported net profit of RM560mil for its 4Q14 results, which brought FY14 earnings to RM2bil. Revenue and EBITDA came in at 99% and 98% of our estimate while net profit came in at 98%, within our and consensus (103% of estimate) expectations.
- Service revenues were up 3% YoY in 4Q14; mobile internet growth (+38% YoY) had more than offset the decline in SMS and voice revenues – Digi is still the only player to deliver this in the industry so far.
- Digi has been surprisingly aggressive with its LTE rollout with a 32% pop coverage in FY14 (almost similar to Maxis) and is targeting 50% pop coverage by end-FY15F. Capex is expected to be maintained at circa RM900mil (vs. our earlier expectation of a slight decline).
- For FY15F, Digi is guiding for low to mid-single digit revenue growth and sustained EBITDA margins. This is more or less in line with our projections which have already partly factored in the impact of prepaid GST pass through. As such, we maintain our projections at this juncture.
- Management indicated that industry competition was intense in 4Q14 with sharply higher A&P cost and channel commissions, but it thinks this is unsustainable. Maxis echoes the same sentiment on intense competition in 4Q14, but guided that FY15F will be reflective of the 4Q14 A&P spending levels.
- Dialogues on spectrum refarming are on-going. Digi is currently at a disadvantage (for lower band spectrum) and a refarming could be an opportunity for it to level its holding with the two larger incumbents.
- Digi announced 7.2sen/share final dividend (which brought FY14 dividend to 26sen/share with a 100% payout ratio) – in line with our expectation. FY15F dividend yield of 4.4% (also at 100% payout ratio) is attractive relative to falling sector dividends.
- Valuations are stretched; it is the most expensive in the sector at 14x FY15F EV/EBITDA (vs. sector average of 11x) but upside risk could come from dividend upside (if Digi proceeds with a business trust structure), and spectrum re-farming.
Source: AmeSecurities
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CDBCreated by kiasutrader | Dec 08, 2015
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