DiGi : Maintain HOLD at RM24.80 with TP RM21.30

DiGi has attractive yield support

DiGi.Com Bhd
(Oct 15, RM24.60)
Maintain hold at RM24.80 with target price RM21.30: DiGi’s iPhone four packages are more attractive for data-centric users than Maxis’. The total cost for DiGi subscribers is generally lower than Maxis with more free internet usage.

However, Maxis’ 3G coverage is broader at circa 70% compared with DiGi’s circa 40%. The sale of the iPhone 4, launched on Sept 24, could squeeze margins slightly in 4Q10 as DiGi expenses its phone subsidies. But we note that the sale of iPhones allows DiGi to tap into Malaysia’s broadband segment and grow its postpaid base.Revenue in 3Q10 may be affected by a lower MTR (mobile termination rate) that was effective mid-July this year. It has been lowered to five sen per minute (flat) from six to eight sen previously.

Earnings before interest, tax, depreciation and amortisation (Ebitda) could inch up (due to its small base) as DiGi is a net sender of calls given that its subscriber base is smaller than Maxis and Celcom (net receivers). But with the expensing of more iPhone subsidies, 3Q10 earnings could be flat quarter-on-quarter.

Maintain “hold” and RM21.30 discounted cash flow-derived target price. We do not expect any earnings surprises and growth over the next three years is expected to be relatively flat. However, the share price is supported by an attractive 7% dividend yield. — HwangDBS Vickers Research, Oct 15


This article appeared in The Edge Financial Daily, October 18, 2010.