Period  4Q13/FY13

Actual vs. Expectations DIGI’s FY13 NP of RM1.7b (+42% YoY) came in above our expectation but was within the street estimate, accounted for 106% of our full-year estimate and 103% of the consensus.

 Overall, the 4Q13 performance was mainly driven by strong uptake of mobile internet services, betterthan-expected cost efficiencies and lower depreciation charges.

Dividends  It declared a fourth interim NDPS of 7.0 sen (exdate: 19 Feb), which translates into a 99% payout ratio, bringing its total full-year NDPS to 21.3 sen (vs. 26.3 sen in FY12).

Key Result Highlights YoY, FY13 revenue climbed 5.9% to RM6.7b, fuelled by stronger service revenue (+4.1% to RM6.1b) and device & other revenue (+28% to RM601m). Its EBITDA margin, meanwhile, dipped by 80bps to 45.2%, in line with the management guidance. However, the group’s NP, soared by 42% to RM1.7b due mainly to the lower depreciation charges as a result of the completion of accelerated deprecation in its network modernisation exercise.

 QoQ, 4Q13 revenue improved by 2.0% to RM1.7b on continuous growth in the service revenue (+1.5%) that was mainly driven by higher mobile internet revenue (+4.5%). However, the NP, surged by 22.2% to RM549m on the back of improved EBITDA and lower depreciation charges (RM122m vs. RM221m in 3Q13).

 The 4Q13 EBITDA margin improved to 46.7% (vs. 45.1% in 3Q13) driven by strong cost management discipline and efficiencies derived from post network modernisation.

 Its subscriber base also continued to gain growth momentum to 11.0m with a total net adds of 168k in 4Q13, which comprised +164k Prepaid and +4k Postpaid customers. The Prepaid ARPU sustained at RM41 while the Postpaid ARPU improved by RM1 to RM83.

 Data revenue accounted for 32.1% (3Q13: 31.4%) of DIGI’s 4Q13 total revenue, mainly driven by higher smartphone penetration rate of 38.1% (+4.1pp QoQ)

Outlook  DIGI is expecting to deliver 4%-6% revenue growth in FY14, higher than the industry average of 4%.

Meanwhile, the group also expect its EBITDA margin to be sustained at FY13 level (~45%).

Change to Forecasts Raised our FY14 and FY15 NP by 6.7% and 2.5%, after fine-tuning and lowering the depreciation cost assumption (from RM838m-RM853m range to RM642m-RM732m range).

Rating Maintain OUTPERFORM rating.

Valuation  Our TP remains unchanged at RM5.24 based on a targeted FY14 EV/forward EBITDA of 12.8x (+1.0SD).

Risks to Our Call Intensifying competition.

Source: Kenanga