Mr. Karl Erik Broten, Digi’s newly appointed CFO, is expected to apply his vast financial management experience to enhance its financial structure efficiency. Management is aiming to reward shareholders by structuring a sustainable capital management plan via a business trust framework instead of raising debts. Meanwhile, Digi is expecting its EBITDA margin to improve further in the 2H on enhanced efficiency post completion of the network modernisation plan. Broadband and tablet plans will continue to remain its focus in the 2H given that the ecosystem of 4G-LTE services under the 2.6GHz spectrum has yet to mature. There are no changes to our Digi FY13-FY14 earnings forecasts. We are maintaining our OUTPERFORM call on Digi with an unchanged target price of RM5.24, based on a targeted FY14 EV/forward EBITDA of 12.7x (+1.0x SD). 

A new CFO.  Digi officially introduced its newly appointed Chief Financial Officer (“CFO”) Mr. Karl Erik Broten to the investment community yesterday. Mr. Broten, who joined Digi since May-13, posses 17 years of financial management experience and had been with the Telenor Group since 1996. Prior to joining Digi, he was the CFO of Telenor Pakistan as well as Telenor Hungary as well as holding several leadership positions in Telenor Norway and Telenor Business Solutions.

Aiming to structure a sustainable capital management plan via a business trust framework instead of raising debts to reward shareholders. Digi’s net debt/EBITDA stood at a minimal 0.06x as at the end of 2Q13 thus providing more rooms to gear up, if needed. Based on our earlier understanding, the group has an optimal capital structure ratio of 1.5x-2.0x. On the business trust front, Digi continues to remain silent on its reviewing process but reiterated its plan to conclude by year-end.

EBITDA margin likely to improve further in the 2H  after the completion of its network modernisation plan in the 3Q. Digi believes its margin could be improved further in 4Q as a result  of lower network maintenance cost, led mainly by the easing of parallel networks (from Huawei & ZTE to solely ZTE). Meanwhile, Digi also has plans to streamline its operating expenditure components (i.e. IT, customer service, and human resource) within the Telenor Group. The group recorded 44.5% EBITDA margin in 1HFY13 and reiterated its target to achieve c.46% for the fullyear, similar to that recorded in FY12. 

Focusing on offering broadband and tablet plans on  its 4G-LTE service in the 2H  rather than on small screens as the latter has limited LTE-ready devices for the 2.6GHz spectrum currently. The group’s LTE services, already launched since early-July, is currently available for both the new and existing broadband as well as tablet postpaid subscribers, whose can subscribe to the service by paying as low as RM15/month for 500MB. By offering one of the cheapest LTE plans in town, management believes that they could provide an opportunity for its subscribers, which generally are more price sensitive, to experience the ultra-high-speed broadband and subsequently influence an upgrade to higher service plan. 

Re-farming of 1800MHz for 4G-LTE service. Digi’s 4G-LTE service is currently deployed under the 2.6GHz spectrum. Going forward, Digi expects to re-farm its 2x10MHz 1.8GHz spectrum for LTE use in 2014 given that the spectrum has better coverage qualities as compared  to the former. We understand that Digi is targeting 1.5k LTE sites (or about 20% population coverage) by end-2014 and reaching 50% population coverage by 2017.

Source: Kenanga