We attended a briefing by Digi yesterday, where management officially introduced its new CEO, Mr. Albern Murty, and provided company updates to the investment community. To capture the next wave of growth, especially from the data segment, Digi has implemented a cluster-based operating model, suggesting that its forward strategy will be very much focused on customer-centric, execution, as well as innovation/product development. Meanwhile, Digi continues to make no secret of eyeing the lower-end spectrum, where the re-farming exercise is expected to take place in the 2H15. Post-briefing, there is no change to our earnings forecasts. We maintained our OUTPERFORM call on Digi with an unchanged target price at RM6.87, based on a targeted FY15 EV/fwd EBITDA of 16.5x, representing a 2.0x std. deviation above the 4-year mean.

1st Malaysian CEO. The group had last month announced its current COO, Albern Murty, will be promoted to become the new CEO of Digi, effective April 1, 2015. The appointment makes Albern Murty the 1st Malaysian to become the CEO of Digi. He will be replacing Digi CEO Lars-Ake Norling, who will be appointed CEO of dtac (Total Access Communication PCL), a Thailand-based business unit owned by Digi’s parent company – Telenor Group. Murty is a Digi veteran who has been with the company since 2002 and had held various management roles before sitting on the driver seat of the company.

Cluster-based operating model. Following the completion of its network modernisation plan and billing platform upgrading, Digi is aiming to drive its growth further through a robust cluster-based operating model in 2015. The model will allow Digi to provide granular micro-campaigns with customer focus (based on geographies and/or segments), and functional dimension to capture synergies as well as economies of scale. The traditional Voice and SMS segments will remain the group’s bread and butter but it continue to see great opportunity in the data segment. Focus on performance, execution, innovations, and customers will be the name of the game for 2015.

Encouraging mobile Internet demand. Digi’s mobile Internet revenue has been on the uptrend, and recorded 39.6% YoY growth to RM1.7b in FY14 through the empowering of customers’ relevant selection of Internet package. For the high-end users, Digi has provided relentless new cutting-edge services while giving early adopters relevant reasons to use the Internet. For the entry-level users, management continues to provide various basic Internet services (i.e. RM0.50/day for Facebook) to lure users. With the current much-improved network back haul, growing smartphone penetration, and wider network coverage, Digi is aiming to become the best mobile Internet provider for mass market. As of end- FY14, Digi has recorded 72% Internet penetration rate in the postpaid segment and 54% in the prepaid division. The group’s 3G and 4G LTE population coverage stood at 86% and 32%, respectively, in FY14 and it is aiming to further widen its LTE coverage to c.50% in FY15.

Spectrum re-farming is expected to occur in the 2H15. Nevertheless, management highlighted that the authority has yet to decide on the approach it will take for spectrum re-farming, whether via spectrum auctions, beauty contests (a selection process where the authorities will review proposals on the spectra usage submitted by bidding parties), allocations or a combination of these. Digi continues to seek for low-end spectrum to drive mobile Internet penetration, especially in the rural areas, and to make Internet affordable. Note that, Digi has the least spectrum of 4MHz in the 900MHz spectrum band in contrast to Maxis (32MHz) and Celcom (34MHz). 

Source: Kenanga