KUALA LUMPUR: DiGi.Com Bhd is expected to post a year-on-year net profit growth of 45% to RM263 million on the back of a 21% growth in revenue in its third quarter ended Sept 30, 2007 (3Q07), driven by continued strong subscriber growth and high usage stoked by higher wages, said CIMB Research.
The research house estimated the telecommunications provider had added about 300,000 to 350,000 subscribers in 3Q07 versus 471,000 in 1Q07 and 241,000 in 2Q07.
“Malaysia’s 1.6 million civil servants and pensioners enjoyed a 7.5% to 42% increase in pay from July 1, 2007, which should translate in greater mobile usage.
“Also, we believe the cut in DiGi’s prepaid domestic long distance (DLD) rates to match local call rates should boost revenue in the medium term by attracting more users and encouraging usage,” it said yesterday.
CIMB Research maintained its outperform recommendation on DiGi at RM22.40 and an end-2008 target price of RM30 for DiGi, based on discounted cash flow, 10.3% weighted average cost of capital and terminal growth 2.5%.
The research house said catalysts for re-rating include continued strong growth, market share gains and further capital management initiatives.
“Management may offer greater clarity on its capital management during the results release, in light of the country’s proposed introduction of a single-tier tax system. Our estimates are 6% to 18% above consensus, reflecting our optimistic view of its execution and competitive environment.
“We advocate accumulating on any weakness in the share price arising from concerns over Telenor’s mandated selldown from 61% to 49% by Dec 31, 2007,” it said, adding DiGi offered one of the best values among its regional cellular companies’ universe.
CIMB Research said it expected DiGi to continue clawing its postpaid market share due to its aggressive push in the small and medium-scale enterprise segment.
“The company offers free calls between two companies/organisations subject to a minimum monthly commitment whereas its competitors only offer free calls within a single company,” it said.
The research house said competition had been benign although it appeared to heat up in the middle of this year.
“We expect EBITDA (earnings before interest, tax, depreciation and amortisation) margin to be unchanged quarter-on-quarter at 47%, a little above management’s FY07 guidance of mid-40’s.
“In July 2007, DiGi and Maxis Communications Bhd were locked in a battle to offer the lowest call rates for selected plans but the war did not drag as earlier feared,” it said.
(Source: The Edge Daily , Surin Murugiah )
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