DIGI (6947) - DiGi.com - Change of guards, same path
Target RM6.20 (Stock Rating: HOLD)
We came away from DiGi’s analyst briefing with our views unchanged. Given the vast experience of incoming new CEO, Albern Murty, and unchanged strategy, we believe the transition will be smooth. Nevertheless, the key challenge remains potentially more intense competition this year, which could chip away some of the positive impact from GST. We maintain our Hold rating and DCF-based target price (WACC: 7.0%), as we believe current valuations offer a fair risk-reward profile. Key upside risks are sooner-than- expected establishment of a business trust and favourable outcome from spectrum re-farming. Key downside risk is more intense competition. For ASEAN telcos, we prefer Telkom Indonesia, Singtel and Thaicom.
What Happened
About 30 analyst/fund managers attended DiGi’s briefing to introduce incoming new CEO, Albern Murty, who will take over from Lars-Ake Norling starting 1 April. Key takeaways: 1) DiGi will maintain its “Internet for All” strategy, with competitively priced Mobile Internet packages and consistently good data network experience. It will revisit its existing offers and improve its touch points in the coming months to bring its value proposition and customercentricity to the next level, 2) DiGi aims to reach 50% 4G coverage by year-end. Given the strong demand for Mobile Internet and the need to keep pace with peers, capex/sales will range between 11-13% in the medium term, 3) DiGi will defend its market share in the migrant workers segment through attractive on-net offers and delivering relevant content/value-added services, and 4) DiGi believes that the regulator is moving in the right direction with regards to fairer spectrum allocation and a refarming process which could be initiated in 2H15.
What We Think
We think the transition to a new CEO will be smooth and that DiGi remains in good hands as Albern has vast experience, having been with DiGi for more than 12 years in various key roles, namely as COO, CMO and Head of Strategy. As expected, there is no change to strategy and execution will be key to delivering growth. The major risk remains potentially more intense competition this year.
What You Should Do
We maintain our Hold rating on DiGi as we believe its current valuations offer a fair risk-reward profile, given potentially more intense competition in FY15. Currently, DiGi trades at FY15 EV/Operating FCF of 17.6x, which is in line with its Malaysian peers but at a 21% premium to the average for ASEAN telcos. Its valuations are supported by decent yields of 4.5-5.0% in FY15-17.
Source: CIMB Daybreak - 17 March 2015
Target RM6.20 (Stock Rating: HOLD)
We came away from DiGi’s analyst briefing with our views unchanged. Given the vast experience of incoming new CEO, Albern Murty, and unchanged strategy, we believe the transition will be smooth. Nevertheless, the key challenge remains potentially more intense competition this year, which could chip away some of the positive impact from GST. We maintain our Hold rating and DCF-based target price (WACC: 7.0%), as we believe current valuations offer a fair risk-reward profile. Key upside risks are sooner-than- expected establishment of a business trust and favourable outcome from spectrum re-farming. Key downside risk is more intense competition. For ASEAN telcos, we prefer Telkom Indonesia, Singtel and Thaicom.
What Happened
About 30 analyst/fund managers attended DiGi’s briefing to introduce incoming new CEO, Albern Murty, who will take over from Lars-Ake Norling starting 1 April. Key takeaways: 1) DiGi will maintain its “Internet for All” strategy, with competitively priced Mobile Internet packages and consistently good data network experience. It will revisit its existing offers and improve its touch points in the coming months to bring its value proposition and customercentricity to the next level, 2) DiGi aims to reach 50% 4G coverage by year-end. Given the strong demand for Mobile Internet and the need to keep pace with peers, capex/sales will range between 11-13% in the medium term, 3) DiGi will defend its market share in the migrant workers segment through attractive on-net offers and delivering relevant content/value-added services, and 4) DiGi believes that the regulator is moving in the right direction with regards to fairer spectrum allocation and a refarming process which could be initiated in 2H15.
What We Think
We think the transition to a new CEO will be smooth and that DiGi remains in good hands as Albern has vast experience, having been with DiGi for more than 12 years in various key roles, namely as COO, CMO and Head of Strategy. As expected, there is no change to strategy and execution will be key to delivering growth. The major risk remains potentially more intense competition this year.
What You Should Do
We maintain our Hold rating on DiGi as we believe its current valuations offer a fair risk-reward profile, given potentially more intense competition in FY15. Currently, DiGi trades at FY15 EV/Operating FCF of 17.6x, which is in line with its Malaysian peers but at a 21% premium to the average for ASEAN telcos. Its valuations are supported by decent yields of 4.5-5.0% in FY15-17.
Source: CIMB Daybreak - 17 March 2015
