DiGi’s  2QFY13  results  were  somewhat  tepid,  as  soft  revenue  growth dampened  margin  improvement.  Unless  2HFY13  shows  significant growth,  there  is  limited  scope  for  an  earnings  surprise.  The  business trust  structure  remains  the  only  visible  re-rating  catalyst  for  now,  with Management expecting to conclude its evaluation by year-end. Maintain SELL with a FV of MYR4.10. 
 
- Within  expectations.  At  first  glance,  DiGi’s 1HFY13  reported  net  profit of  MYR708m  (+9.9%  y-o-y)  appears  below  our  (46%)  and  consensus (44%)  expectations  of  the  respective  full-year  estimates.  However, excluding  accelerated  depreciation  (1HFY13:  MYR137m),  we  estimate 2QFY13  core  net  profit  at  MYR811m  (Figure  1),  accounting  for  49%  of FY13 figures and in line with our and consensus forecasts. 

- Improvements  come  as  expected.  Q-o-q,  revenue  growth  was surprisingly flattish (+0.4%), as our expectation of a voice usage pick-up following  a  seasonally  weak  1QFY13  did  not  materialise.  Service revenue  grew  3.4%  q-o-q,  but  was  almost  fully  mitigated  by  lower handset  sales  (-25.7%).  Nonetheless,  2QFY13  EBITDA  margin benefitted  as  a  result  and  improved  by  1.5  ppt  to  45.2%  (1QFY13: 43.7%).  Consequently,  core  net  profit  increased  4.4%  q-o-q  to MYR414m despite a marginal uptick in effective tax rate. 

- Briefing  highlights.  While  Management  maintained  its  2013  revenue growth  guidance  of  5%-7%,  we  believe  DiGi  will  likely  only  meet  the lower  end  of  the  target.  It  expects  to  vacate  a  portion  (2x10Mhz)  of  its 1800Mhz  spectrum  for  long-term  evolution  (LTE)  use  in  2014.  This  is positive given the better coverage qualities of 1800Mhz in comparison to 2600Mhz. Management is targeting 1,500 LTE sites by end-2014 before eventually reaching 50% population coverage by 2017. 

- Dividends. DiGi declared the second interim net DPS of 4.8 sen, which translated into a payout ratio of 98% and brought  YTD DPS to 8.6 sen. For  FY13,  we  maintain  our  DPS  forecast  of  20  sen,  assuming  a  100% payout ratio.

Source: RHB