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Tuesday, January 24, 2017

DIGI: Lower Profits On Better Revenue

Result Update

For QE31/12/2016, DIGI's net profit dropped 14.5% q-o-q or 2% y-o-y to RM375 million while revenue was mixed - up 3% q-o-q but down 3% y-o-y to RM1.67 billion. Revenue rose marginally q-o-q due to solid postpaid growth momentum and stronger internet adoption which offset weaker prepaid business. While EBITDA & PBT dropped q-o-q after accounting for associated cost for the higher device sales, increased marketing cost in supporting subscriber acquisition and progressive network expansion cost. Nevertheless EBITDA margin remained robust at 44% following strong operational efficiency discipline and well-managed cost structure.


Table: DIGI's last 8 quarterly results

Despite the decline in profits and profit margins last quarter - the fourth quarter is normally a weaker quarter - we can see the net profit number was not too far from the RM400 million mark.


Graph: DIGI's last 39 quarterly results

Valuation

DIGI (closed at RM4.92 yesterday) is now trading at a trailing PER of 23 times (based on last 4 quarters' EPS of 21.0 sen). DIGI's high PER is somewhat mitigated by decent dividend yield of 4.2%.

Technical Outlook

DIGI broke above its intermediate downtrend line at RM4.90 in August last year. Since then, it had traded sideways between RM4.80 & RM5.00. The last time it traded sideways after a breakout of a downtrend line was from September 2013 to February 2014 - between RM4.00 & RM4.30. After it broke to the upside of that range, it rallied all the way to RM6.00-6.20. (Note: DIGI actually broke down in January 2014 before it broke up!) 

 
Chart 1: Digi's weekly chart as at Jan 23, 2017 (Source: MalaysiaStock.Biz)


Chart 2: Digi's monthly chart as at Jan 23, 2017 (Source: MalaysiaStock.Biz)

Conclusion

Despite the relatively high PER, Digi is rated a HOLD based on improved performance over the past few quarters (albeit weaker one in QE31/12/2016), decent dividend yield and mildly positive technical outlook. 

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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