With higher chances of an improvement in network quality and coverage, there is likely to be better growth opportunities, even in the event that competition starts to intensify. We remain confident that DiGi will continue to gain revenue market share while cost efficiency measures should ensure that profitability is sustained. Maintain HOLD and TP of RM5.01.
DiGi was a net winner from the spectrum re-farming exercise carried out earlier this year with additional spectrum allocated in the lower 900MHz bandwidth (although lowered by 2 x 5MHz in the 1800MHz band). Although management guided that spectrum on this band is currently not inadequate, the lower bandwidth would certainly aid as a network quality booster, which remains a weak area for DiGi, in our view. With the better allocation, we also believe that DiGi would be in a better position to more efficiently deploy capex and even accelerate its 4G population coverage which stood at 78% as at end-3Q16 (50% at 3Q15).
The better coverage and enhanced service quality should also better help DiGi in the postpaid segment. Admittedly, management says this segment has been difficult to penetrate although it has progressively grown over the past 3 years vis-à-vis the decline in the prepaid segment. In the former, DiGi continues to offer attractive packages and competes on price points while in the latter, management is taking steps to address the data substitution effect for the migrant segment. Packages are thus being targeted at driving higher prepaid internet revenue in the prepaid segment.
Despite the intense competition over the past 2 years, EBITDA margins have continued to hold steady. We remain confident that DiGi will continue to drive cost and network efficiency to curtail any pricing pressure. DiGi remains our top sector pick as it continues to exhibit the ability to grow revenue market share, which should be further enhanced with the better spectrum allocation ahead. Moreover, 2016-18E dividend yields of 4.4- 4.6% are above the sector average. Maintain Hold and an unchanged DCF-derived 12-month TP of RM5.01. Key downside risks are a weak RM, intense price competition and inability to monetise data, while upside risks include better-than-expected prepaid revenue.
Source: Affin Hwang Research - 28 Dec 2016
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CDBCreated by kltrader | Jan 03, 2023
Created by kltrader | Sep 30, 2022