Digiman to Pole Position in 2013

I love my Digi-man!

Looks like it is an indicative buy. As Warren advised, you have to get in at the right price.


My advice, buy about half of what you can afford now and keep the rest for the 'averaging game' if Bursa drops like a clanger with the Eurozone continuing contagion and the possible government changeover if BN is forced to pack its bags after the impending 13th Election. A hung parliament with BN in the driver's seat will be most disturbing and may also send the bursa spinning down and thereby present you with a super opportunity to accumulate Digi shares.


As Spain brought a temporary reprieve from its win in the Euro-Cup, the financial crows are coming back to roost on both cows and matadors.


So, let us look at one of the darlings in the Malaysian telecommunication sector. Perceived as the best run telco, it has miles to go and would not sleep.


Despite many IBs telling us that Digi-com (Digi) is fully valued, surprisingly buyers are still lining up to buy this counter. Just today morning, Digi sprinted to the RM4.30 level. Will it hold? Will there be traction for more upper side gains? At last look, it drooped to RM4.29.

The Edge write-up of this counter in May 2012 provides some invaluable insight on this counter. Let us look at some of these.

Their statement,”Digi has paid out more dividends exceeding net annual profits for the last 5 years and yet is flush with cash” is just mind-boggling.

The Edge is of the opinion that the current capital structure is far from optimal in spite of the share subdivision to a one sen par. So, what does this mean. A lightly bonus since they do not need cash. I can forsee a 1:1 or even a 2:1 bonus if they are generous and we are stir crazy lucky!

As of 1Q2012, Digi has RM1.02 billion of gross cash and RM438.2 million net cash. For the foreseeable future expect Digi to give out more cash dividends. so, gimme, gimme until it hurts!

The pay-out is on track. Constrained by limited retained earnings on its balance sheet, Digi has put into motion the pay-out trajectory.

In April 2012, it proposed a second capital management initiative to return RM495 million of cash to its shareholders. The first exercise in September 2011 distributed RM509 million to shareholders.

Digi is currently in the process of implementing the first capital repayment and expect to disburse the second by 1Q2013.

Based on The Edge’s forecast at the then trading price of RM4.06, capital distribution will be more than 51 sen per share with an annual net yield of 6.3%.

Apart from trying to sell bundled goods of services to occasional mobile internet users, Digi wants to expand its 3G coverage. For the future data revenue will take the lead over voice.

The cooperation with Celcom has resulted in its initial site consolidation which will be fully completed by the end of 2013. Joint fiber aggregation and trunk roll has also begun.

Current profits are temporarily negatively impacted by accelerated depreciation. This will all ‘go away’ in 2013 when it is fully written down and profits will then spike. Watch out for this growth stock then!

Crystal-balling, The Edge envisaged Digi will earn RM1.32 billion in the current year; rising to RM1.77 billion in 2013.

This prices the stock at 24X of estimated 2012 earnings which should gradually go down to 17.9X in 2013-lower than the estimated valuations of both Maxis and TM.

So, it is very likely that Digi will take pole position in 2013 in the Telecommunications F1!

So, Digi is a prime candidate for medium term investment.