Hot Stock DiGi rises 1.4% on stronger 3Q earnings, higher TPs
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Hot Stock DiGi rises 1.4% on stronger 3Q earnings, higher TPs
Hot Stock DiGi rises 1.4% on stronger 3Q earnings, higher TPs |
Business & Markets 2013 |
Written by Jeffrey Tan of theedgemalaysia.com |
Tuesday, 29 October 2013 10:55 |
Research analysts this morning also raised their target price for the stock, with one raising earnings outlook.
At 10.36 am today, DiGi was traded higher at RM5.00 after rising 7 sen or 1.4% with 7.1 million shares exchanging hands. It was the eighth top gainer.
In a note, MIDF Research said with the better-than-expected 3Q13 results, it is revising its FY13 and FY14 earnings upwards by 21.1% and 16.6% respectively.
MIDF research analysts Zulkifli Hamzah and Martin Foo Chuan Loong said they are projecting better operating profit margin of 30.6% for FY13 and 31.6% for FY14, in light of the lower depreciation and amortisation cost.
They said this also led to an upward revision in their dividend assumption as they are maintaining their dividend payout ratio assumption of more than 90%.
“We are upgrading DiGi to ‘buy’ from ‘neutral’ at RM4.93 with a revised target price (TP) of RM6.23,” the pair said.
“TP is based on the discounted dividend model (DDM) with an estimated long term long dividend payout of ratio of 100% and adjusted weighted average cost of capital of 7.56%.”
Zulkifli and Foo said given the improved service quality, they view the company is in a better position to capture a larger subscriber base.
Coupled with better operating margin, the duo expects stronger earnings ahead and a brighter prospect of higher dividend being declared.
“Following our revision in earnings, dividend yield for FY13 and FY14 appears more attractive at 4.1% and 4.4%,” they said.
“Furthermore, there could be further upside in shareholder’s returns in view of the upcoming business trust proposal.”
In addition, Zulkifli and Foo pointed out that DiGi has improved voice and data service quality, with drop call rates improved by 59%, since the completion of its network modernisation programme.
The pair said the telecommunications giant is also extending its Long Term Evolution (LTE) coverage gradually to other parts of Malaysia with targeted 1,500 sites by end of next year.
Meanwhile, JF Apex Securities said it is maintaining its ‘hold’ rating on DiGi, with a higher TP of RM4.85 based on DDM as it rolls over to FY14.
The research house said it gathered that the management would pass on Goods & Services Tax (GST) on to prepaid customers and translate that into savings of 6% for FY15.
Yesterday, many analysts said Digi would be the greatest beneficiary, among mobile telcos, of Budget 2014.
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