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Friday, February 07, 2014

Digi- Bottom-line set to rise

Result Update

For QE31/12/2013, Digi's net profit jumped higher by 22% q-o-q & 123% y-o-y to RM549 million while revenue inched up by 2% q-o-q & 6% y-o-y to RM1.733 billion. The surge in bottom-line was "mainly aided by higher service revenues from an increased subscribers’ base, coupled with reduced depreciation in tandem with the end of the network modernisation exercise, as well as lower operating costs incurred from the Group’s continued cost optimisation focus".


Table: Digi's last 8 quarterly results

It is indeed heartening to see the PBT margin hit the 32% mark in QE30/9/2013. That means the margin broke above its "downtrend line" at 30% in that quarter. If you think that was a fluke, the PBT margin came in at 39% n the latest quarter, QE31/12/2013. (See earlier post on this point.)


Chart 1: Digi's last 25 quarterly results

Valuation

Digi (closed at RM4.68 yesterday) is now trading at a trailing PE of 21 times (based on last 4 quarters' EPS of 21.9 sen). With earning growth of 41% for the last 4 quarters, the PEG ratio is about 0.5 time. Based on the low PEG ratio, Digi's valuation is deemed attractive.

Technical Outlook

From Chart 2, we can see that Digi's uptrend stalled in early 2013 (probably due to the high valuation & flattish bottom-line). For much of 2013, Digi was in a gradual upward channel. In the past 3 weeks, Digi broke below the channel due to indiscriminate selldown. Can the stock climb back into the channel? It needs to break above the RM4.70 mark which was the lower boundary of the violated channel.


Chart 2: Digi's weekly chart as at Feb 6, 2014 (Source: Tradesignum)


Chart 3: Digi's daily chart as at Feb 6, 2014 (Source: Tradesignum) 

Conclusion

Based on good financial performance & attractive valuation, Digi is a good stock for long-term investment. Its mildly bearish technical outlook may deter some but you may want to gain a small position while awaiting a change in the technical outlook (in view of the positive results & good valuation).

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Digi.

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