Affin Research keeps DiGi as preferred pick in telco sector

KUALA LUMPUR: Affin Investment Research is keeping DiGi.Com as its preferred pick for the sector given its growth and dividend element.

It said on Wednesday DiGi’s improving 3G/LTE coverage and network quality will put DiGi on a more level playing field. Any business acquisition will likely be for spectrum but at the right pricing (DiGi will unlikely overpay as it weighs capex vs spectrum acquisition).

“Maintain BUY for a target price of RM5.39. Key risks include irrational price competition and outflow of foreign funds as US Fed starts tapering (foreign shareholding stood at 13.2% as at end 3Q13),” it said.

Affin Research said in the year ahead, it believes DiGi will deliver another year of revenuegrowth in the mid single digit magnitude which will be underpinned by: 1) growth in the postpaid segment – aided by DiGi’s newly upgraded infrastructure and enhanced coverage (76% 3G population coverage as at end 3Q13).

As of end the January-September period of 2013, DiGi only added 25,000 postpaid subs or a 13% share of industry postpaid net adds.

However, there was continued growth in the data segment (31% of group revenue vs 29% in the previous corresponding period.

“A key target segment is the migrant segment, where we understand that take-up has been encouraging,” it said.

Affin Research expects growth in LTE service in which DiGi is targeting a population coverage of 50% by 2015. Impact from the latter may however be later, rather than sooner.

“With a 6% revenue growth and expectations of stable EBITDA margins (9M13: 44.6%), DiGi’s bottomline is projcted to rise by +16% in FY14 (from +33% in FY13), albeit also aided by the absence of any accelerated depreciation charges as its network modernisation programme is completed,” it said.