DIGI – Fundamental Analysis (19 Apr 2016)

Excel – Download the analysis file

Latest Financial Report – Q4 2015 Financial Report (5 Feb 2015) and Management Discussion And Analysis 4Q 2015

FY15 Q4 Results Highlight:

  • Digi made solid progress on its acquisition drive and attracted additional 450K subscribers in the final quarter to end the year with 12.1 million subscribers. At the same time, Digi pursued on aggressive 4G-LTE network expansion to more than 65% of the population nationwide. Meanwhile, service revenue registered positive sequential growth to RM1,587 million with total service revenue for the year at RM6,348 million. Underlying EBITDA and PAT margins, however, was impacted by seasonally higher smartphone demand in addition to effects from continued intense competition and weak MYR currency.
  • Digi reported 4Q15 earnings of RM382,4m, a decline of -31.7%yoy. This represents a decrease of -15.2%yoy which was mainly caused by higher progressive depreciation from network expansion, accelerated depreciation of RM26m relating to migration of data centre, and aggressive promotion campaign.
  • ROIC and CROIC were also decreased to 69.1% (FY14: 92.5%) and 53.9% (FY14: 88.3%) respectively. However, efficiency of DIGI in generating profits and cash flows is still the highest among the peers.
  • Despite aggressive promotion campaign, DIGI still able to maintain EBITDA margin at 43.1% (FY14: 45.1%).
  • Digi’s distributed approximately 100% of its 4Q15 reported earnings which amounted to 4.90sen per share. For FY15, the group has declared dividend amounted to 22sen per share. This is 4sen per share lower as compared to 26sen per share declared in FY14.
  • DIGI provided a full analysis of the Group’s prospects up to 31 December 2015 in the “Management Discussion & Analysis“.

Valuation:

In my opinion, fair value of DIGI range from 4.7 to 5.3. Uncertainty risk of fair value is from MEDIUM to HIGH.

DIGI-FY15Q4-Football-Field

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.

Digi’s attractive product offerings and active marketing campaigns has worked in favour of the group as seen in the growth of its subscriber base. However, higher subscriber acquisition cost and lower ARPU has impacted the profit margin. We already can see the intense competition landscape in the market. This would, in turn, lead to subdued earnings growth prospect.

The 2016 guidance remained intact as follows:

  • Service revenue – Sustain at 2015 level
  • EBITDA – Sustain at 2015 level
  • Capex – Sustain at 2015 level

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

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

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