DIGI (6947) : DiGi.com - Executing well in a tough market
Target RM6.30 (Stock Rating: ADD)
9M14’s core net profit was largely in-line at 73.3% of CIMB’s and 75.5% of the consensus full-year estimates. Service revenue growth slowed further in 3Q14 due to the more competitive market, but the strong prepaid subscriber growth suggests a healthier growth trajectory in 4Q14. A 6.2sen DPS was declared, or a 99% payout, bringing YTD DPS to 18.8sen, in-line with our estimates. We maintain our earnings forecast and DCF-based target price, which is based on the fair valuation of its potential business trust and return of excess cash. DiGi remains an Add and our top Malaysian telco pick, with likely rerating catalysts being stronger-than-peers earnings growth over the next three years, and potential set-up of a business trust structure.
Service revenue growth could be stronger in 4Q14
Service revenue growth in 3Q14 slowed further to 2.0% yoy (1Q14: 5.3%, 2Q14: 2.8%) due to the more competitive market, as well as challenges from DiGi’s migration to its new converged billing platform. Nevertheless, the strong prepaid subscriber growth in 3Q14 (+4.8% qoq), positive seasonality as well as the launch of several popular smartphones could see a healthier service revenue growth trajectory in 4Q14. Going into 2015, we expect DiGi’s service revenue growth to accelerate to 5.8% yoy due to the GST impact as well as the full benefits from its 3G coverage expansion.
Data monetisation continues
Mobile Internet/Broadband revenue continued to grow strongly in 3Q14, up 9.8% qoq (+40.3% yoy). This was in-line with the substantial 5.1% pts qoq rise in smartphone penetration to 47.0%, driven by prepaid smartphone bundles. We believe there is still room for this to rise given the increasing affordability of entry-level smartphones, as well as opportunities to drive greater and more frequent data usage among its prepaid user base.
Steady progress in network rollout
Capex for 9M14 stood at RM670m, in-line with DiGi’s guidance for up-to RM900m this year. The company saw 3G coverage rising steadily to 84% at end-3Q14 (2Q14: 83%, 4Q13: 80%), on target to reach 86% by year-end, and finally closing the gap with Maxis/Celcom. DiGi is guiding for a more normalised capex/sales of 10-12% in 2015 given the significant 3G roll-out achieved this year, and the completion of its IT/billing system upgrade.
Source: CIMB Daybreak - 21 October 2014
Target RM6.30 (Stock Rating: ADD)
9M14’s core net profit was largely in-line at 73.3% of CIMB’s and 75.5% of the consensus full-year estimates. Service revenue growth slowed further in 3Q14 due to the more competitive market, but the strong prepaid subscriber growth suggests a healthier growth trajectory in 4Q14. A 6.2sen DPS was declared, or a 99% payout, bringing YTD DPS to 18.8sen, in-line with our estimates. We maintain our earnings forecast and DCF-based target price, which is based on the fair valuation of its potential business trust and return of excess cash. DiGi remains an Add and our top Malaysian telco pick, with likely rerating catalysts being stronger-than-peers earnings growth over the next three years, and potential set-up of a business trust structure.
Service revenue growth could be stronger in 4Q14
Service revenue growth in 3Q14 slowed further to 2.0% yoy (1Q14: 5.3%, 2Q14: 2.8%) due to the more competitive market, as well as challenges from DiGi’s migration to its new converged billing platform. Nevertheless, the strong prepaid subscriber growth in 3Q14 (+4.8% qoq), positive seasonality as well as the launch of several popular smartphones could see a healthier service revenue growth trajectory in 4Q14. Going into 2015, we expect DiGi’s service revenue growth to accelerate to 5.8% yoy due to the GST impact as well as the full benefits from its 3G coverage expansion.
Data monetisation continues
Mobile Internet/Broadband revenue continued to grow strongly in 3Q14, up 9.8% qoq (+40.3% yoy). This was in-line with the substantial 5.1% pts qoq rise in smartphone penetration to 47.0%, driven by prepaid smartphone bundles. We believe there is still room for this to rise given the increasing affordability of entry-level smartphones, as well as opportunities to drive greater and more frequent data usage among its prepaid user base.
Steady progress in network rollout
Capex for 9M14 stood at RM670m, in-line with DiGi’s guidance for up-to RM900m this year. The company saw 3G coverage rising steadily to 84% at end-3Q14 (2Q14: 83%, 4Q13: 80%), on target to reach 86% by year-end, and finally closing the gap with Maxis/Celcom. DiGi is guiding for a more normalised capex/sales of 10-12% in 2015 given the significant 3G roll-out achieved this year, and the completion of its IT/billing system upgrade.
Source: CIMB Daybreak - 21 October 2014
