Thursday, July 21, 2011

Digi.Com Bhd 2011 Earnings Evaluation

Results
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.

Dividends
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.

Highlights
# 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.

Risks
Irrational competition, government & regulatory risks.

Forecasts
Maintained.

Rating - HOLD
Positives
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.

Valuation
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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