More accelerated depreciation to go for DiGi

by **Cals** Tue 23 Apr 2013, 10:38

More accelerated depreciation to go for DiGi
Business & Markets 2013
Written by theedgemalaysia.com
Tuesday, 23 April 2013 10:25

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DIGI.COM BHD []
(April 22, RM4.67)
Maintain neutral at RM4.67 with a target price of RM4.80: DiGi is expected to release its results for the first quarter of 2013 financial year (1QFY13) today. We expect the telco to post 1Q net profit growth of 2% year-on-year (y-o-y) or RM327 million. We are only anticipating moderate growth due to the still ongoing impact of accelerated depreciation, of which RM150 million is yet to be charged.

We expect Digi to register steady 1Q earnings before interest, tax, depreciation and amortisation (Ebitda) growth of about 5% y-o-y to RM775 million. This implies an Ebitda margin of 46%. We anticipate Ebitda growth will be driven by a high single digit revenue expansion in the quarter.

For 1QFY13, we anticipate revenue growth of about 7.7% or RM1.69 billion due to momentum arising from the festival in 1Q. Voice revenue expansion will supplement the push for data revenue growth in the quarter.

We expect DiGi to register flat net adds in 1Q due to seasonal factors. Nevertheless, average revenue per user (Arpu) and minutes of use (MOU) will be stable. The prepaid and postpaid Arpu will post about RM40 and RM81 respectively, and there may be a slight increase in prepaid and postpaid MOU due to the festivities.

DiGi has been a consistent dividend giver and we believe that 1Q will not be an exception. However, dividends will be capped by its performance due to the near exhaustion of its retained earnings (from RM871 million in 3QFY12 to RM183.6 million in 4QFY12) as a result of all the special dividends. We are estimating a dividend of about four sen for 1QFY13.

Pending the 1Q results, we are maintaining our FY13 forecast for now. We expect a dividend yield of 3.6% for FY13, which is still decent. However, we believe investors searching for higher dividend yields should switch to its rival Maxis Bhd. Investors putting their money in growth in the telecommunications sector may look at TELEKOM MALAYSIA BHD [] instead. Our target price of RM4.80 is based on a discounted dividend model with an estimated long-term dividend payout ratio of 100% and an adjusted weighted average cost of capital of 7.45%. — MIDF Research, April 22

This article first appeared in The Edge Financial Daily, on April 23, 2013.