Digi- earning set to rise

Result Update

For QE30/9/2013, DIGI's net profit rose 18% q-o-q or 42% y-o-y to RM449 million while revenue rose marginally by 3% q-o-q or 7% y-o-y to RM1.7 billion. The improved bottom-line on q-o-q basis was due to "a net result of higher service revenues coupled with lower accelerated depreciation in tandem with the tail end of the network modernization exercise, and was partially off-set by higher cost of handsets in line with higher take-up of device-bundled offerings during the current quarter".


Table: DIGI's last 8 quarterly results

We can see that the profit margin has picked up significantly over the past 2 quarters. With that improvement- a result of lower depreciation charges & higher revenue- the company's net profit has made a new high in QE30/9/2013.


Chart 1: DIGI's last 24 quarterly results

Valuation

DIGI (closed at RM4.93 yesterday) is now trading at a PE of 28 times (based on last 4 quarters' EPS of 18 sen). At this multiple, DIGI is deemed full-valued.

Technical Outlook

DIGI has been moving sideway for the past 1 year. However, the stock is still in a long-term uptrend and the signs are showing that it is poised to continue with the prior uptrend. This is reflected in the uptrend breakout of an intermediate downtrend line, RR at RM4.80 as well as all indicators rising upward.


Chart 2: DIGI's monthly chart as at Oct 28, 2013 (Source: quickcharts)

Conclusion

Based on improved financial performance & improving technical outlook, DIGI's rating is now revised from SELL to HOLD. To raise the recommendation again would require further improvement in its earning in order to justify paying a PE of 28 times for this stock.

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.