DIGI.com Berhad. The Group's principal activities are the provision of mobile communication services to businesses, individuals and other operators through its operating unit, DiGi Telecommunications Sdn Bhd. Other activities include provision of international gateway network which offers cross border interconnection and related services, through its operating unit, DiGi Telecommunications Sdn Bhd and property holding and other related services. Operations are carried out mainly in Malaysia.
Stock Rating: UNDERPERFORM (BUY LATER)
Price: RM4.42
Target price: RM3.96
based on average high PE range of 22
Fundamentals: Long Term Outperform (5-year period)
Technical: Short Term Bearish (3-month period)
Risk Level: Medium-High
**Outperform: Stock expected to do better than market return; has upside or cheap vs target price. Usually a buy call.
**Market perform: Stock expected to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform: Stock expected to do worse than market return; has downside or too expensive to buy vs target price. If fundamentals change a sell call.
Fundamental Analysis
Revenue/EPS: CAGR of ~3%. Slow growth. Next catalyst would be LTE/4G as a game changer as tablets/ultrabooks/smart data plan usage picks up.
Debt-to-equity Ratio: 0.52. On the neutral side. For a high capex industry this level of debt is astounding (good management).
Liquid asset-to-share Ratio: 1.41! Cash, bank balances and deposit ready for use.
Return on Capital Employed: Has always been high >70%. Very good use of assets considering the amount of capex being used.
****For more information download my worksheet from my dropbox: Aboi_Hybrid_PEGGY_method
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| Share price growing faster than EPS growth. Share trading within PE 16 to 22. |
Technical Analysis
Timing is key when buying a stock like DIGI. I believed more shakeouts will happen as evident from the current PE of 29 which is way higher than the average 22 and high side of 22. If I can get it at around RM4.00 then it is fairly priced for a good blue chip dividend play stock. However for capital gains one might need to wait until the catalyst LTE/4G start rolling and that will only start to bear fruit at beginning of 2014, another one more round of financial year to go.
The ultra high volume plays a key role. It means that market pros are selling to unsuspected retail investors like us because most of the individuals traders whose judgment will be clouded by all the great news floating around them. All these traders rush into the market buying it while the pros are offloading them hence the ultra high volume. Once this transfer has taken place a bear market is guaranteed.
VSA Up-Thrust - signs of weakness
Indicated by a wide spread during the day but falls to close on the low, on high volume. This is the logic, if the high volume seen was buying, then the closing price would have been on the high and not on the low. Hence the close on low suggests there is more selling than buying in the high volume within the marketplace. We get a bear run again.
VSA Shakeout - signs of strength
This is intended to remove many investors and traders from the market, obviously all those un-pros. News will be bad and this is used by the pros to panic people out of their positions. Usually after a shakeout the market will move sideways with low volume because the pros would try to buy as much of the stock as they can, without significantly putting the price up against their own buying. This stage is called the accumulation phase; some last for a few days, I have seen some for weeks.
VSA Testing - signs of strength
Prices are marked down rapidly during the day but the price would recover to close near the high of the day with low volume. This signals that the market has been marked down and has attracted no professional selling due to the low volume. Remember that the pros hold the volume, so when they do not sell, the market has little choice but to go up as it is driven by the usual supply and demand.
VSA Stopping volume - signs of strength
This results from buying orders from market professionals which are large enough to stop a down move. Seen as a high volume down day but usually closing in the middle or the highs. Stopping volume is a point where demand overcomes supply.
In The News
Aiming for a better usage of its current spectrum portfolios. The group believed that the recently awarded 2x10MHz in the 2600MHz bandwidth by MCMC is sufficient to deploy its upcoming LTE services. Apart from the 2600MHz bandwidth, the group also has a number of other spectrums, which comprised of the 900MHz, 1800MHz and 2100MHz bandwidths, similar to its industry peers. In view of the various cost advantages that could be enjoyed via deploying LTE services through the 1800GHz bandwidth in contrast to the 2600MHz bandwidth, management intends to request the authority to re-assign the 1800MHz usage (which currently is used for its 2G deployment) to 4G services. The key difference between the 2600MHz and 1800GHz spectrums is that the latter has a wider coverage as well as a higher building penetration rate, which will translate into a significant cost saving in terms of capex spending. Meanwhile, we also understand that management is open for collaboration with other spectrum holders should the opportunities arise.
Targeting to roll out LTE services in FY13. Management has reiterated its intention to roll out its LTE services in FY13, albeit the actual rollout time frame remained vague at this juncture. Based on our earlier understanding, Digi prefers to be the last mobile operator to rollout the service and thus allowed the group to introduce more innovation as well as competitive LTE plans to the market. We understand that Digi is likely to focus on mid/large-screen data (i.e. tablet and notebooks) in its upcoming LTE services.
Continues to explore business trust. Digi indicated that it was still exploring setting up of a business trust to house its assets and extract more cash to further reward shareholders. Management said it is not necessary to list the business trust in the stock exchange, should the framework materialise. Digi also indicated that its net debt/EBITDA could be raised to 1.5x-2.0x. Should the company leverage to these levels, we estimated that Digi could potential unlock RM0.52-RM0.71/share.
Network collaboration saving expected to kick in by FY15. Digi is making good progress on its site sharing and joint-fiber build with Celcom. As for the cost savings, we understand that Digi expects to have an annual combine saving of RM150-RM200m from 2015 onwards with total estimated cash saving of about RM1.1b each over 10 years. We have yet to impute in the above cost savings into our FY15 financial model.
**End of The following taken from Kenanga Research**
Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.
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