Results

• FY14 top line of RM7.02bn was translated into a much anticipated core net profit of RM1.98bn, accounting for 97.2% and 100.1% of HLIB and consensus’ full year estimates, respectively.

Deviations

• In line.

Dividends

• 4th interim tax exempt (single-tier) dividend of 7.2 sen per share (4Q13: 7.0 sen), representing a 100% payout, which goes ex on 25 Feb 2015. YTD dividend amounted to 26.0 sen per share (FY13: 21.3 sen), within our expectations.

Highlights

• Concluded 2014 by achieving all financial KPIs as guided with respectable 4.2% revenue growth while EBITDA was stable at 45%.

• 4Q14 service revenue grew resiliently (+3.0% yoy and +3.0% qoq) to RM1.6bn thanks to strong internet revenue gain (+37.9% yoy and 6.9% qoq) as usage volume was more than sufficient to undo its cannibalization effect on SMS (-20.3% yoy and -3.8% qoq).

• Sub acquisitions continued where prepaid and postpaid rose by 53k and 23k sequentially, respectively, enlarging total base to 11.4m. This is not comparable to what it achieved in 3Q14 (+442k) or Maxis’ net adds in 4Q14 (+498k).

• Data contributes 40.2% to service revenue (+4.9ppt yoy and +0.3ppt qoq), almost equivalent to 40.4% of blended ARPU.

• Postpaid ARPU gained marginally to RM83 (+RM1 qoq) while prepaid’s was flat at RM41. Blended MOU was largely unchanged but DiGi believes that it is trending down.

• 2015 guidance: low to mid-single digit service revenue growth (considered the impacts from new mobile termination rates and GST impacts), sustaining EBITDA margin (~45%) and CAPEX (RM900m) similar to FY14 level.

• Expect positive GST impact but no guidance was shared and opined that this will be determined by market dynamics. No update on business trust structure.

Risks

• Irrational competition, difficulty in refarming 1800MHz spectrum for LTE, unable to monetize data revenue, government and regulatory risks.

Forecasts

• Updated model based on latest financial data as well as guidance. In turn, this has led to FY15-16 EPS revision by - 2.2% and +1.1%, respectively.

Rating

HOLD , TP: RM6.30

Positives

• mobile internet growth, margin improvementsthrough collaborations/sharing, capital management via business trust structure, recoup prepaid tax via GST.

Negatives

• Intense competition from U Mobile, MVNOs andOTT players.

Valuation

Reiterate HOLD with unchanged DCF-derived fair value of RM6.30 based on WACC of 6.0% and TG of 2.0%.

Source: Hong Leong Investment Bank Research - 10 Feb 2015