We  met  DiGi’s  new  CEO,  Lars-Ake  Norling,  in  an  informal  group meeting yesterday. We remain positive on DiGi as Norling indicated that he intends to maintain DiGi’s revenue growth momentum, and we  see his  experience  in  an  advanced  mobile  market  like  Sweden  as  key  to improving data monetisation and optimising capex  for DiGi. There  are,however,  no  new  developments  on  the  business  trust  structure. Maintain BUY. 

Revenue  growth  remains key focus.  We remain positive  on DiGi, as Norling  clearly outlined that the overall focus of the group is to maintain its revenue growth momentum. We expect m anagement  to keep  mobile internet  as the primary growth engine  while aiming to lead the market in data monetisation.  We note that DiGi’s strong 1HFY14 (+5.0% revenue growth) suggests that the group is, in some way, already doing that. 

Experience in advanced markets helps.  Management hopes to put to good use  its knowledge  from Sweden (an advanced mobile market with 99% LTE coverage) into DiGi to  monetise  data better, whereby  pricing and  execution  will  remain  key.  In  addition,  we  believe  Norling’sexperience  in  active  sharing  may  help  reduce  DiGi’s  capex  intensity (estimated at 13% for FY14) in the medium term  to  free up  more  cash flow.  Management  indicated  that  telcos  in  advanced  markets  such  as Sweden have  a capex intensity of 10-12%. However, we note  that  there are no further new developments on the exploration of a business trust.

Keeping a close watch on voice.  SMS revenue  has  been on a steady decline, and management expects to increase voice bundling efforts to prevent  voice  from  suffering  the  same  fate  as  SMS.  Nonetheless,  we observe that DiGi has been  the  most successful among the incumbents in mitigating the decline in SMS revenue.

Risks.  i) weaker-than-expected net adds, ii) lower-than-expected voice tariffs, and iii) poor data monetisation.

Forecasts. We leave our earnings forecasts unchanged.

Investment  case.  We maintain  BUY  on  the stock,  with  an  unchanged DDM-based FV  of  MYR6.50.  We  like  the company  for  its  strong growth in the prepaid segment, growing revenue market share and good traction in  data monetisation.  Our FV translates to a FY15 P/E of 23x, which is comparable to industry peers.

Source: RHB