AmBank Research - DiGi.Com - Raya promotions till 30 June HOLD, 13 Jun 2016

We maintain our rating of Digi with a HOLD recommendation with an unchanged DCF-based fair value of RM4.95/share, which implies a FY17F EV/EBITDA of 13x, the stock’s 2 year average. As part of the current Raya celebration, Digi is offering special promotions that include weekly packages worth RM9 for 1.2GB of Internet quota and RM35 a month for 3GB for prepaid subscribers. These Raya promotions, which are valid until 30 June 2016, include unlimited music streaming as well as free calls and SMS to three Buddyz members.

As a comparison, current weekly top up offers include RM3 for 30MB, RM6 for 150MB and RM7 for 300MB. These include unlimited Whatsapp and WeChat usage. Additionally, Digi Postpaid customers will be able to enjoy  a price as low as RM65 per line for 21GB of Internet quota (RM3.10/GB) to be shared among family members. For 3 persons, this would mean RM195/month or RM9.29/GB. The lowest postpaid plan is currently RM68/month with 3GB data while family sharing packages include RM159 per month for 7.5GB to be shared with the principal, spouse and child, with an additional RM38 per line.

For now, rival U Mobile’s P70 package still offers the best rate at RM70 for 15GB data (RM4.67/GB) which has an option for a member line at RM50/month with an additional data of 3GB.

Despite the group’s focus on the affordable market segment, Digi still aims to move its current cellular connectivity model to become a digital services provider in areas such as mobile banking, remittances, transactions and other applications. Last month, Telenor Group, which owns the controlling 49% stake in Digi, had acquired a 100% equity stake in Prabhu Money Transfer Sdn Bhd, a Malaysia-based licensed money services business based in Malaysia that provides international remittance services. In our view, such a strategic shift by a celco, if successful, will likely require a long gestation period for significant alternative revenues to materialise. Hence, we maintain FY16F-FY18F ARPU assumptions for Digi as these new Raya offers will continue to maintain pressure on average revenue per user (ARPUs). Recall that the group’s 1QFY16 blended ARPU fell by RM1/month QoQ to RM44/month, driven largely by the postpaid segment, which fell from RM81/month to RM80/month. The stock currently trades at a fair FY17F EV/EBITDA of 12x, near its 3 year average of 12.6x.