DiGi lifted by the data wave
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DiGi lifted by the data wave
DiGi lifted by the data wave |
Business & Markets 2014 |
Written by RHB Research |
Monday, 10 February 2014 10:26 |
DiGi.Com Bhd
(Feb 7, RM4.97)
Upgrade to buy from sell, at RM4.85, with a revised target price of RM5.60 from RM4.10 previously. DiGi’s results for its fourth quarter ended Dec 31 of financial year 2013 (4QFY13) results were in line with our expectations. While we see a marginal downtick in revenue growth guidance, we think the telco has fared better than its local peers in monetising data, with above-industry revenue growth expectations and stable margins.
We upgrade the stock to “buy” with a fair value of RM5.60. We also roll over to FY15 and raise our FY14 forecasts by 10% on incorporating lower depreciation charges.
DiGi’s FY13 core net profit of RM1.82 billion (+20.6% year-on-year [y-o-y]) was within our estimate (104%) but ahead of consensus’ (107%) full-year estimate.
Quarter-on-quarter (q-o-q), overall revenue grew 2% (3QFY13: +2.8%), partly driven by higher handset sales (+6.1%). Service revenue growth was steady, rising 1.8% q-o-q on the back of good data growth (+4.7%) and stable voice revenue.
Its 4QFY13 earnings before interest, tax, depreciation and amortisation (Ebitda) margin ticked up 1.7 percentage points to 46.8% (3QFY13: 45.1%) due to strong cost management discipline, but management guided that this is unsustainable.
We believe staff costs may normalise while higher device subsidies are likely to materialise going forward. Meanwhile, core net profit jumped 19.1% q-o-q to RM548 million, mainly owing to lower depreciation
Management unveiled its 2014 guidance of 4% to 6% revenue growth, which is above its industry revenue growth estimate of about 4%. DiGi expects its 2014 Ebitda margin to remain stable at 45%.
Management reiterated that 2013 was the last year in which the telco enjoyed broadband network-related tax incentives, and expects its 2014 effective tax rate to be closer to the statutory corporate tax rate.
Based on management’s guidance that the run rate for depreciation in 2014 will likely be similar to that in 4QFY13, we expect earnings to go up significantly in spite of its effective tax rate normalising higher.
There is no further clarity on the company’s proposal to set up a business trust and management has not provided any timeline at this juncture.
DiGi declared a fourth interim net dividend per share (DPS) of seven sen, which translates into a payout ratio of 99%, bringing its year-to-date DPS to 21.3 sen. We forecast a FY14 DPS of 25.6 sen, assuming a 100% payout ratio. — RHB Research, Feb 7
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This article first appeared in The Edge Financial Daily, on February 10, 2014.
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