• Foreigners’ darling. DIGI is one of the HLIB top picks with an institutional target price of RM5.78 (based on DCF), or 18% upside. The stock is also likely to rerate further amid positioning for more aggress ive foreigners ’ return in 2H16. We like DIGI due to its good corporate governance, under-leveraged balance sheet, which could support spectrum auction with steady dividend payout, low frequency band would enhance its efficiency.

• Likely to play catch-up as it has underperformed KLCI by 10.8%. DIGI’s share price tumbled 13% from 52-week high of RM6.47 (15 Apr 2015) to a low of RM4.76 (29 Jan) before closing at RM4.90 on 18 Mar (YTD: -9.4%). However, we opine that share prices are likely to find a bottom near RM4.76 due to the oversold daily and weekly slow stochastic indicators.
• Poised to break the RM5.10 resistance trendline. In the wake of bottoming up hourly indicators and the likelihood of more aggressive buying into liquid blue chips as foreigners return, DIGI’s s hare price could witness near term rerating. Immediate key resistance is RM5.10 (downtrend line from RM5.85 in Sep). A decisive breach above RM5.10 is crucial for a resumption of uptrend towards RM5.27 (200-d SMA) and our long term objective of RM5.49 levels. Cut loss at RM4.71.
• Attractive risk to reward ratio with 12.0% upside against 3.9% downside. All in, we see an attractive risk to reward ratio for investor with a theoretical entry price of RM4.90 given that the downside to the cut loss zone of RM4.71 is 19sen (-3.9%) while the upside to the LT price objective of RM5.49 is 59 sen (+12.0%).

Source: Hong Leong Investment Bank Research - 21 Mar 2016