Thursday, July 21, 2011

Digi.Com Bhd 2011 Earnings Evaluation

1H reported net profit of RM567.7m (+2.0%) came in within expectations, accounting for 47.5% of our full-year forecast and 50.6% of the consensus full-year estimates.

Declared 2nd interim tax exempt dividend of 30.0 sen (exdate is 23 Aug 11 and payable on 7 Sep 11), translating to a payout ratio of 98.7%. Intends to maintain nominal dividends similar to 2010 (which payout will be in excess of its net profit) via capital management plan.

# QoQ. Despite revenue and EBITDA rose by 2.6% and 4.5%, 2Q11 net profit declined by 28.7% from RM331.4m to RM236.3m and this was mainly due to: (1) Accelerated depreciation (effective 2Q11) on its existing equipment to facilitate network modernization and equipment swap-out with ZTE; and (2) RM16.6m one-off premium payable to noteholders for the early redemption of MTN 1 and 2.

# Cumulatively, 1H11 net profit rose by 2.0% to RM567.7m, this was mainly due to a 10.1% revenue growth (which, in turn was driven by higher data and handset sales revenue that more than offset a slightly lower voice revenue) and increased cost efficiency that more than offset higher depreciation (due to accelerated depreciation charges effective form 2Q11).

# Management guidance includes: (1) High single-digit revenue growth; (2) 2011 EBITDA margins improve from 2010; and (3) 2011 capex would be 10% lower than 2010.

Irrational competition, government & regulatory risks.


Rating - HOLD
Mobile internet growth, margin improvements from its network sharing agreement with Celcom and its fiberisation agreement with Time DotCom. Further capital management could see additional returns to shareholders.

DDM-derived TP remains unchanged at RM29.20 (based on WACC of 6% and terminal growth of 0%). Maintain Hold.

Source: HLIB Research

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