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Monday, February 06, 2017

DIGI: Uptrend Poised To Continue (UPDATE)

Last Thursday, DIGI’s broke above its intermediate downtrend line (rr) at RM4.95. The following day, it broke above the psychological RM5.00 mark. This morning, it tested its Sep 13, 2016 high of RM5.11. I rate the RM5.11 as a resistance event where the stock may correct and pullback toward the support from its psychological RM5.00 mark.  

(Note: The chart below is adjusted for dividend payment. As a result, the September 2016 high is not reflected as RM5.11 but as RM5.06. I believe the RM5.11 will still pose some resistance for the current breakout.) 

Chart 1: DIGI's daikly chart as at Feb 6, 2017_11.30 (Source: MalaysiaStock.Biz)

Quick Update

On Jan 23, DIGI announced its result for QE31/12/2016 where its net profit dropped 2% y-o-y to RM375 million while revenue dropped 3% y-o-y to RM1.67 billion. Compared to the results with the immediate preceding quarter (QE30/9/2016), its revenue increased marginally q-o-q due to solid postpaid growth momentum and stronger internet adoption which offset weaker prepaid business. However 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. For more, check out my recent post.

Despite the relatively high valuation, I have kept DIGI’s rating as 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.


Chart 2: DIGI's weekly chart as at Feb 6, 2017_11.30 (Source: MalaysiaStock.Biz)


The last time, DIGI broke above its intermediate downtrend and followed up with an upside breakout of the ensuing sideways trading range was in early 2014. In that rally, DIGI rose from the breakout point of RM4.20 to a high of RM6.00- giving investors a return of 42% over a 1-year period. If the current breakout leads to a similar rally, we might see DIGI making a high of RM7.00.

Conclusion

Based on the current technical breakout, I believe that DIGI could be a good trading BUY.

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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