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DIGI – Fundamental Analysis (27 Oct 2015) - L. C. Chong

Tan KW
Publish date: Wed, 28 Oct 2015, 11:37 PM
Tan KW
0 496,301
Good.

Fundamental Analysis as of FY14 – http://www.slideshare.net/lcchong76/digi-fundamental-analysis-fy14

Excel – http://1drv.ms/1S8GZ8d

Latest Financial – Q3 2015 Financial Report (26 Oct 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4901553

Management Discussion And Analysis 3Q 2015 – http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=188655&name=EA_FR_ATTACHMENTS

FY15 Q3 Results Highlight:

  • Digi reported 3Q15 earnings of RM396.6m, a decline of -18.5%yoy. Excluding forex impact of +RM37m, normalised PAT came in at RM433.6m. This represents a decrease of -10.9%yoy which was mainly caused by higher progressive depreciation from network expansion and accelerated depreciation of RM26m relating to migration of data centre.
  • Service revenue for current quarter (“3Q 2015”) remained resilient and fairly stable at RM1,584 million against preceding quarter (“2Q 2015”) of RM1,589 million amid intense price competition and weak consumer sentiment. Device and other revenue trended lower for the quarter and contributed to sequentially lower overall revenue of RM1,675 million (2Q 2015: RM1,723 million). As a flow through from margin compression from price competition, increased traffic and foreign exchange (“forex”) cost from unfavourable forex movement (3Q 2015: RM4.40 vs. 2Q 2015: RM3.77 against USD), EBITDA moderated to RM719 million (2Q 2015: RM788 million). Consequentially, profit before tax leveled to RM537 million (2Q 2015: RM626 million) after accounting for progressively higher depreciation from network expansion.
  • DIGI provided a full analysis of the Group’s prospects up to 31 December 2015 in the “Management Discussion & Analysis“.
  • 26 Oct 2015 – Digi mulling Voice-over-LTE (VoLTE) services in 2016
    • Digi would be the first mobile network operator (MNO) to rollout VoLTE in Malaysia
    • There is a possibility that users might need to pay more with VoLTE. This could help battle the decrease in average revenue per user (ARPU). Digi’s ARPU has been under pressure since 2013, decreasing to RM46 from RM48 in 2013.

Valuation:

  • 5-Y DCF:
    • Good Scenario (9.0% – 11.0%): From 6.27 to 6.74 (Uncertainty Risk: LOW to MEDIUM)
    • Base Scenario (6.0% – 8.0%): From 5.61 to 6.04 (Uncertainty Risk: MEDIUM)
    • Bad Scenario (3.0% – 5.0%): From 5.02 to 5.41 (Uncertainty Risk: HIGH to VERY HIGH)
    • Ugly Scenario (-1.0% – 1.0%): From 4.31 to 4.65 (Uncertainty Risk: VERY HIGH)
    • At current price (5.25), based on RDCF, assumption of FCFF growth rate in the next 5 years is 4.5%.
  • Absolute EY%:
    • Trailing:
      • FY14 (EPS: 0.261) – 6.209 (Uncertainty Risk: MEDIUM)
      • R4Q (EPS: 0.244) – 5.809 (Uncertainty Risk: MEDIUM)
    • Forward:
      • FY15 (EPS: 0.252 ± 5%) – From 5.694 to 6.294 (Uncertainty Risk: MEDIUM)
      • FY16 (EPS: 0.263 ± 5%) – From 5.936 to 6.561 (Uncertainty Risk: MEDIUM)
    • EPS applied to reach the current stock price (5.25): 0.221
  • Industrial Average EY%:
  • Trailing:
  • FY14 (EPS: 0.261) – 6.24 (Uncertainty Risk: MEDIUM)
  • R4Q (EPS: 0.244) – 5.84 (Uncertainty Risk: MEDIUM)
  • Forward:
  • FY15 (EPS: 0.252 ± 5%) – From 5.72 to 6.32 (Uncertainty Risk: MEDIUM)
  • FY16 (EPS: 0.263 ± 5%) – From 5.96 to 6.59 (Uncertainty Risk: MEDIUM)
  • In my opinion, fair value of DIGI range from 6.0 to 6.3.

image

Going Forward:

Digi possesses a strong management team. Based on the historical track record, the group has managed to compete with its peers despite its subservient position in the spectrum allocation domain. This is shown in its ability to move in-tandem with the demand of the market, especially the prepaid segment. Furthermore, latest earnings result has shown that there is encouraging growth in the post-paid segment which is usually dominated by its peers. On the other hand, aggressive price competition as well as pressure on consumer wallet has impacted the mobile network operators.

The 2015 guidance remained intact as follows:

  • Low to mid single digit service revenue growth
  • Sustain EBITDA margin and Capex similar to 2014 level

I will continue to hold this share, and accumulate it.

At the time of writing, I owned shares of DIGI.

 

https://lcchong.wordpress.com/2015/10/28/digi-fundamental-analysis-27-oct-2015/

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Be the first to like this. Showing 9 of 9 comments

zbaikitree2

digi is an overpriced shit. get out fast and buy xox.
1 lot digi you sell can buy 20 lots xox.

2015-10-28 23:58

guoyen

Can u explain how digi overpriced?

2015-10-29 00:20

zbaikitree2

i explain u believe meh?

save my gas la, this is a trick to attack me later right? won't fall for it.

go do research yourself.

2015-10-29 00:21

guoyen

I never set a trick...but it is interesting to know how digi is overpriced from your judgement...if u r only talk cock then just forget about it...

2015-10-29 00:23

zbaikitree2

艾畢斯研究表示,雖然數碼網絡流失14萬5千名預付用戶,但在推出兩種全新配套後,有望重收失地。此外,隨著預付卡豁免消費稅,消費情緒也有望回穩。


losing 145,000 prepaid customers.

is that enough to convince you?

2015-10-29 00:31

guoyen

No.....haha

2015-10-29 01:20

Jee Foh

u sure xox is better? haha

2015-10-29 08:32

shinado

zbaikitree2 digi is an overpriced shit. get out fast and buy xox.
1 lot digi you sell can buy 20 lots xox.
28/10/2015 23:58


Let's look at some key data based on 5 years from XOX to determine if it's a better buy:

2015 2014 2013 2012 2011
Revenue 90952 57050 40807 61719 16789
Net Profit 1223 -1576 4514 -20670 -15974
Profit Margin (%) 1.34 -2.76 11.06 -33.49 -95.15

Based on these data, we can see that XOX is in red 3 times for the past 5 years. Plus, it's a penny stock that has never declared any dividends since listing. Of course we never know if in year 2016 XOX can perform much better. But I'm not convinced at this point to even attempt to look into deeper details such as cash flow position of the company.

On the other hand, overpriced or not, we have Digi which consistently payout dividends each year.

So, I let you judge this by yourself.

Disclosure: I do not previously or currently own either XOX or DIGI shares.

2015-10-29 12:44

guoyen

Good Shinado

2015-10-29 12:50

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