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Categories
| Update AmResearch cuts DiGi to hold |
| Written by Financial Daily | |||
| Thursday, 02 July 2009 11:20 | |||
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“After five consecutive quarters of underperforming the industry growth rate, we are now inclined to believe that DiGi is facing a subdued phase in subscriber growth. DiGi’s subscribers grew by an average of 2% between 1Q08 and 1Q09 as opposed to the industry’s 4%. More importantly, we see Celcom’s renewed focus on DiGi’s stronghold — low-income segment — disrupting the latter’s market share. As it is, Celcom’s prepaid subscribers grew 3% quarter-on-quarter in 1Q09 versus 1% for DiGi,” AmResearch noted. “While we see DiGi’s postpaid subscribers continuing to grow above the industry’s growth rate — off a low base — degradation in ARPU due to intense competition will cap contribution towards earnings. We expect its postpaid segment to contribute 31% of revenue by FY10F as opposed to its prepaid segment of 67%,” it added. The local research house however, said it was positive on DiGi’s strategy to roll out mobile broadband services by phases amid the current economic slowdown. “But we believe DiGi will need to step up its capex in 2010 in order to remain competitive and capture more demand given that current broadband penetration is only 23%. Currently, it covers only 25% of the Klang Valley and about 35% to 45% of Kota Kinabalu and Penang,” it added. Against a higher capex estimate, AmResearch trimmed its dividend forecast for FY10 to 160 sen per share from 170 sen per share. “We are maintaining our dividend forecast of 165 sen per share for FY09F. At current levels, this translates to an attractive yield of 7%. While we expect net gearing to rise to 17% in FY10F from 6% in FY09F, it would still be comparable to its regional peers of 20% to 30%,” it said. AmResearch noted that at current levels, DiGi is trading at FY10F’s price earnings (PE) of 15 times, a premium to its regional peers of 12 times to 13 times. “Against a muted earnings outlook, we believe its proactive capital management is already reflected in the premium. Hence, we do not see much upside to its share price.” DiGi was unchanged at RM22.20 yesterday. This article appeared in The Edge Financial Daily, July 2, 2009.
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