• One of HLIB institutional top picks with target price of RM6.22 or 20.3% upside. We like DIGI due to its 1) Solid internet and postpaid revenue growth, 2) Lean operation with prudent management; 3) Under-leveraged balance sheet for possible M&A and spectrum auction; 4) Significantly strengthened its 4G LTE coverage; and 5) Margins improvements through collaborations/sharing, capital management via business trust structure. However, key risks are the intense competition from U Mobile, mobile virtual network operators (MVNOs) and Overthe- top (OTT) players.
• Uptrend intact. After climbing to a high of RM5.85 on 18 Sep, DIGI share prices slipped to a low of RM5.00 on 14 Dec before closing at RM5.17 yesterday. Des pite choppy market, DIGI’s uptrend remains intact as share prices are holding above its support trendline. Downside risk is limited amid grossly oversold slow stochastic.
• A decisive breach above immediate resistance of RM5.24 (61.8% FR) is likely to spur prices higher towards our short term upside targets of RM5.35 (50% FR) and RM5.51 (200-d SMA) before reaching our long term objective of RM5.85.
• Key supports are RM5.08 (76.4% FR or 11 Jan low) and RM5.00 psychological level. Cut loss at RM4.97.
• Positives risk to reward ratio with 13.2% upside against 3.9% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM5.17 given that the downside to the cut loss zone of RM4.97 is 20 sen (-3.9%) while the upside to the LT target of RM5.85 is 68.0 sen (+13.2%).
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Source: Hong Leong Investment Bank Research - 18 Jan 2016