Digi- Bottom-line slid further

Results Update

For QE31/12/2012, Digi's net profit dropped by 22% q-o-q or 37% y-o-y to RM246 million while revenue increased by 3% q-o-q or 5% y-o-y to RM1.63 billion. The decline in net profit q-o-q basis was attributed to higher accelerated depreciation from network modernization, which was partially off-set by lower operating costs incurred from the Group’s continued cost optimization focus.


Table: Digi's last 8 quarterly results

However, if you look at Chart 1 below, we can see that Digi's bottom-line has been flattish for 5 years. This is due to a steady slide in its profit margin- with pre-tax profit margin dropping from 33% to 22% & net profit margin sliding from 25% to 15% from QE31/12/2007 to QE31/12/2012.


Chart 1: Digi's last 21 quarterly results

Valuation

Digi (closed at RM4.66 yesterday) is now trading at a PE of 30 times (based on last 4 quarters' EPS of 15.51 sen). At this multiple, Digi is deemed overvalued.

Technical Outlook

From the chart below, it seems that Digi has made a temporary top. Its immediate support is at the horizontal line at RM4.60. The next support is at the horizontal line at RM4.00.


Chart 2: Digi's weekly chart as at Feb 6, 2013 (Source: quickcharts)

Conclusion

Based on the decline in its financial performance, unattractive valuation & negative technical outlook, Digi is rated a SELL.

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.