Friday, July 18, 2014

AmWatch - DiGi.Com : Data gaining strong traction post modernisation BUY, 18 Jul 2014

STOCK FOCUS OF THE DAY
DiGi.Com : Data gaining strong traction post modernisation          BUY

We maintain BUY on Digi with a higher DCF-derived fair value of RM6.30/share (vs. RM5.80/share previously). Digi reported core earnings of RM499mil for 2Q14 - bringing 1H14 core net profit to RM984mil. This is ahead of our forecast – accounting for 110% of our FY14F earnings, if annualised, and 104% of consensus. 
Key deviation was lower than expected depreciation rate, while top line growth was also stronger than expected at 5% YTD growth vs. our earlier 4% revenue growth assumption for FY14F. We have adjusted lower our depreciation assumptions and raised our revenue growth assumption (to +5.6% YoY), which is closer to the higher end of management guidance of 4%-6% to reflect the stronger-than-expected 2Q14 result. Our FY14F-16F earnings are raised by 9%-16%. The upward earnings revision also raises our dividend forecast, which is pegged at 100% payout ratio. Dividend yield now stands at 4.7%.
Internet revenue rose 40% YoY in 2Q14, which more than offset a moderation in voice (-4% YoY) and SMS revenues (-17% YoY). This suggests that Digi’s strategy to attract new data users and stimulate usage from existing low data users via the introduction of bite-sized data plans is gaining strong traction.  Secondly, the subscriber decline seen in 1Q14 (-1% QoQ) was reversed in 2Q14 (+0.2% QoQ) given the strong take-up of smartphone bundles.
The 1800 MHz and 900 MHz spectrum are up for renewal early next year. At this point, management expects a status quo in its spectrum holding. However, should there be a re-farming or a re-bidding exercise, Digi would have the opportunity to level out its holding with peers in these bands and this could be a positive for the group. Valuation is decent at 21x, trading below its historical average PE of 25x.


Others :
Bonia Corporation : Adjusting for bonus issue and share split      BUY
Bursa Malaysia : 2QFY14: Another 20 sen special dividend             BUY
Pavilion REIT : AEIs progressing smoothly                                              HOLD
Capitamalls Malaysia : Stable earnings amid weaker rental trends at Sungei Wang Plaza  HOLD


QUICK TAKES
Boustead Heavy Industries : Formalising LCS contract after  2½ years       HOLD
CIMB Group : Softer non-interest income for CIMB Thai in 2Q     HOLD
Plantation Sector : Key takeaways from RSPO’s presentation      NEUTRAL


NEWS HIGHLIGHTS
UEM World : In talks with Khazanah on Johor land deal
Sin Chew Media Corporation : Ming Pao eyes expansion, strategic investors
Plantation Sector : CPO output may fall by 2015 if replanting delays
Tenaga Nasional : Gets RM282m Pantai-Salak South transmission line project


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