BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Tuesday, 24 July, 2012

Results Review

Digi.com
Inline
Stock Data
Bloomberg Ticker Market Cap Issued shares 52-week range (H) 52-week range (L) 3-mth avg daily volume Free Float Shariah Compliant Financial Derivatives DIGI MK 34,365.5 Equity

Neutral
RM4.42 (1.8% Upside) RM4.50 Digis 1HFY12 net earnings of RM644.8m is inline RM4.43 with our
7.5 13.9% 6.9% 0.9
49.0% 15.8%

Another Solid Quarter

Altman Z-score YTD price chg YTD KLCI chg Beta Major Shareholders
Telenor Asa EPF

Price: Target Price:

7,775.0 4.54 2.86 7,673,30 33.5% 8 Y

n.a.

Share Performance (%) Absolute vs. KLCI Financial Highlights FY 31 Dec (RMm) 2009 Turnover 4,909.6 EBITDA 2,124.6 Pretax profit 1,366.5 Core Net Profit 1,000.5 EPS (sen) 12.9 PER (x) 34.3 DPS (sen) 17.8 Div. Yield (%) 4.0% NTA/share (RM) 0.07 EBITDA margin Pretax margin Effective tax rate ROE ROA Net Gearing (x) Growth ratios Turnover EBITDA Pretax profit Core Net profit EPS Share Price Chart
5.40 5.20 5.00 4.80
4.60 4.40

1mth 5.5 40.9

3mth 14.1 8.8

12mth 55.1 40.9

forecast. 1H revenue and net earnings grew by 8.6% and 13.6% respectively. Overall margins have shown improvements due to effective cost cutting measures. DiGi has been given the goahead to commence LTE trials on 1800 MHz spectrum band and this is scheduled to commence in 3QFY12. A second interim dividend of 5.9 sen is proposed and we expect a total dividend of 20sen to be paid for FY12, translating into a yield of 4.5%. We rolled over our valuation to FY13 and arrived at a new target price of RM4.50. With not much potential upside, we downgrade Digi to Neutral. Increased customer base. DiGi added 293,000 new customers in 2QFY12 (1QFY12: 16k) totalling 10.23m. The higher net addition of new customers this quarter was driven by attractive bundled offerings as well as targeted acquisition efforts. Prepaid and postpaid ARPU remain stable at RM41 and RM85 respectively, similar to previous quarter. At current quarter, data revenue accounted for 30.3% (1QFY12: 30.7%) of Digis service revenue as 23.5% (1QFY12: 22.2%) of overall customers are smart-phone users which augurs well for future data revenue growth. Improved EEBITDA margin. QoQ and YoY EBITDA margin has improved from 25.9% 22.2% respectively to 26.5%, mainly due to effective cost cutting measures. Regulatory updates. Digi is still waiting for the final decision from Malaysian Communications and Multimedia Commission (MCMC) on the final allocation for the 2600 MHz spectrum. In the meantime, DiGi has been given the go-ahead to commence LTE trials on 1800 MHz spectrum band and this is scheduled to commence in Q312. Higher CAPEX for current Quarter. Digis CAPEX totalled RM177m in 2QFY12, 50% higher than 1QFY12 of RM118m. The bulk of CAPEX was spent on coverage expansion; capacity upgrades as well as works related to our network modernisation. Maintaining our forecast. We are maintaining our FY12 and FY13 net earnings at RM1,328.9m and RM1,400.2m respectively. Balance sheet remains healthy with net cash position, however, operating cash-flow have reduced to RM575m (RM619m in 1QFY12) resulted from higher CAPEX in the quarter. Second interim dividend. Digi proposed its second interim dividend of 5.9sen. We maintain our FY12 dividend forecast 20sen translating into yield of 4.5%. Downgrade to Neutral. We rolled over valuation basis to FY13 and arrived at a new target price of RM4.50, using DCF methodology (WACC assumption 8.6%). Coupled with dividend yield of 5% and share price upside of 1.8%, the stock could offers potential total return of less than 10%, hence, we downgrade Digi to NEUTRAL.

2010 5,406.5 2,411.4 1,597.2 1,178.0 15.2 29.2 16.3 3.7% 0.06 44.6% 29.5% 26.2% 87.5% 22.9% 0.2

2011 5,964.0 2,764.9 1,560.3 1,254.4 16.1 27.4 17.5 4.0% 0.09 46.4% 26.2% 19.6% 88.9% 25.8% net cash

2012E 6,571.1 3,086.9 1,725.4 1,328.9 17.1 25.9 20.0 4.5% 0.08 47.0% 26.3% 23.0% 102.4% 27.4% net cash

2013E 7,205.4 3,313.4 1,818.6 1,400.2 18.0 24.5 26.4 6.0% 0.01 46.0% 25.2% 23.0% 262.7% 31.1% net cash

43.3% 27.8% 26.8% 65.8% 21.1% 0.3

2.0% -2.1% -11.7% -12.3% -12.3%

10.1% 13.5% 16.9% 17.7% 17.7%

10.3% 14.7% -2.3% 6.5% 6.5%

10.2% 11.6% 10.6% 5.9% 5.9%

9.7% 7.3% 5.4% 5.4% 5.4%

4.20 Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Thong Pak Leng pakleng.thong@bimbsec.com.my 03-26918887 ext 186

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24 July 2012

Results Review: Digi.com 2QFY12

2QFY11 1,468.0 671.9 325.3 (89.0) 0.0 236.3 3.0 0.1 45.8% 22.2% 16.1% 27.4% 3QFY11 1,520.0 708.0 398.5 (106.1) 0.0 292.5 3.8 net cash 46.6% 26.2% 19.2% 26.6% 4QFY11 1,545.4 727.8 389.3 4.9 0.0 394.2 5.1 net cash 47.1% 25.2% 25.5% -1.3% 1QFY12 1,569.4 736.9 405.8 (85.2) 0.0 320.6 4.1 net cash 47.0% 25.9% 20.4% 21.0% 2QFY12 1,579.7 (571.8) 419.3 (95.1) 0.0 324.2 4.2 net cash -36.2% 26.5% 20.5% 22.7% QoQ Chg 0.7% -177.6% 3.3% 11.7% n.a. 1.1% 1.1% n.a. -177.1% 2.7% 0.4% 8.1% YoY Chg 7.6% -185.1% 28.9% 7.0% n.a. 37.2% 37.2% n.a. -179.1% 19.8% 27.5% -17.0% 1HFY11 2,898.6 1,329.1 772.4 (204.7) 0.0 567.7 7.3 0.1 45.9% 26.6% 19.6% 26.5% 1HFY12 3,149.1 165.1 825.1 (180.3) 0.0 644.8 8.3 net cash 5.2% 26.2% 20.5% 21.9% YTD Chg 8.6% -87.6% 6.8% -11.9% n.a. 13.6% 13.6% n.a. -88.6% -1.7% 4.5% -17.6%

Quarterly figures
FY 31 Dec (RMm) Revenue EBITDA Pretax profit Taxation Minority Interest Net Profit EPS (sen) Net gearing (x) EBITDA margin (%) PBT margin (%) Net profit margin (%) Effective tax rate (%)

Source: BIMB Securities

Income Statement
FY 31 Dec (RMm) Revenue EBITDA Pretax profit Tax MI Core Net Profit EPS (sen) EPS growth (%) DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) Div. yield (%) P/ NTA (x) ROE (%) ROA (%) 2009 4,909.6 2,124.6 1,366.5 (366.0) 0.0 1,000.5 12.9 -12.3% 17.8 0.07 0.3 34.3 4.0% 60.2 65.8% 21.1% 2010 5,406.5 2,411.4 1,597.2 (419.2) 0.0 1,178.0 15.2 17.7% 16.3 0.06 0.2 29.2 3.7% 68.6 87.5% 22.9% 2011 5,964.0 2,764.9 1,560.3 (305.9) 0.0 1,254.4 16.1 6.5% 17.5 0.09 net cash 27.4 4.0% 50.6 88.9% 25.8% 2012E 2013E 6,571.1 7,205.4 3,086.9 3,313.4 1,725.4 1,818.6 (396.5) (418.4) 0.0 0.0 1,328.9 1,400.2 17.1 18.0 5.9% 5.4% 20.0 26.4 0.08 0.01 net cash net cash 25.9 24.5 4.5% 6.0% 56.5 310.7 102.4% 262.7% 27.4% 31.1% Source: BIMB Securities

Balance Sheet
FY 31 Dec (RMm) Non Current Assets Current Assets Total Assets Current Liabilities Non Current Liabilities Shareholders' Fund Minority Interests Equity & Liabilities 2009 3,858.3 874.1 4,732.4 2,025.8 1,185.2 1,521.5 0.0 4,732.4 2010 3,805.9 1,330.8 5,136.6 2,271.6 1,518.4 1,346.6 0.0 5,136.6 2011 3,240.5 1,622.8 4,863.3 2,593.3 858.7 1,411.4 0.0 4,863.3 2012E 2,655.2 2,199.2 4,854.5 2,810.5 858.7 1,185.3 0.0 4,854.5 2013E 2,023.3 2,473.4 4,496.7 3,105.1 858.7 533.0 0.0 4,496.7

Source: BIMB Securities

www.bimbsec.com.my

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24 July 2012

Results Review: Digi.com 2QFY12

DEFINITION OF RATINGS BIMB Securities uses the following rating system: STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

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