During Digi’s briefing, management remained cautious on the telco sector’s short-term outlook with muted growth expected. Maintain BUY with a lower TP of MYR6.30 (from MYR6.60, 23% upside). Digi indicated that it would focus investing on its network to become more internetcentric. It also believes that the sector’s current low prices for data is unsustainable and could hamper further data monetisation efforts.

• Aiming high. We attended a meeting hosted by Digi.com’s (Digi)management yesterday. The telco aspires to be an internet-centric company and to be the best 4G/LTE network provider in the country. We believe Digi is on track to meet the target LTE coverage of 50% by yearend with a longer-term target of 70% by 2017. Management has reaffirmed the capex guidance of MYR900m (similar to FY14), mainly for network investments (including site fiberisation) and LTE rollout (a third of Digi sites are currently LTE-enabled). We believe Digi’s improved distribution channels and expanding 4G coverage presents an upside for market share gains. The positive customer experience and satisfaction have contributed towards a stronger brand value.
• Growth to be challenged in the short-term. Management is cautious on the industry’s short-term growth prospects due to the weak consumer sentiment and intense competition in the market. Digi believes the current level of competition where the other telcos are dishing out more data is unsustainable and could hamper its efforts to monetise data over the longer-term. That said, we note that Digi has been more effective in monetising data vs its peers due to its innovative bite-sized data offerings, and as such, any rationalisation in data pricing going forward should be beneficial to Digi. MYR depreciation impinging on traffic cost. Digi said the weaker MYR will put a strain on its international traffic cost (priced in USD).
• Maintain BUY with lower TP. No changes to our forecasts. We maintain BUY on Digi with DCF-based TP lowered to MYR6.30. This isdue to the revision in our WACC to 7.1% (from 6.9%) after increasing our market risk premium by 0.5%, in line with our house view of a more volatile macroeconomic environment. Digi remains our top pick for the Malaysian telco sector.