Maintain neutral at RM21.24, target price at RM22: DiGi announced that it has entered into a domestic roaming (DR) agreement with U Mobile for the latter to access DiGi’s 2G network for the provision of mobile services. The agreement is valid for three years from commercial launch and is renewable for a period of two years thereafter.
The agreement with DiGi is conditional upon U Mobile terminating its current DR arrangement with Celcom (entered into in June 2007), and providing an undisclosed deposit to DiGi. We believe the new agreement with DiGi signifies U Mobile’s confidence in DiGi’s 2G/GPRS coverage of over 97% of the population nationwide.
We expect contribution from U Mobile, a hybrid mobile network operator, to be negligible in the context of DiGi’s overall revenues derived from mobile virtual network operators (MVNOs). Note that MVNO contribution to Celcom (which has the highest proportion of MVNO sales) revenue is less than 5%. The DR agreement would optimise DiGi’s current network utilisation resulting in greater spectral efficiency.
The DR agreement with DiGi follows the maiden pact signed with Baraka Telecom, an MVNO in May 2009, for a period of three years from Baraka’s commercial launch. Baraka was previously reported as seeking the approval of the Malaysian Communications and Multimedia Commission for a licence to operate mobile services.
Maintain neutral on DiGi based on a target price of RM22. The key share price rerating catalysts are more proactive management of its capital on the back of a significantly under-leveraged balance sheet and improved revenue traction from the recovery in mobile spending and improved wireless broadband contribution.
Should DiGi move closer to a more optimal net debt/Ebitda (earnings before interest, taxes, depreciation and amortisation) of 1-1.2 times, we estimate it could return an additional RM1.40-RM1.90/share in special dividends, on top of the projected recurring dividend yield of 8.4% based on our forecast net dividend of RM1.24/share.
DiGi’s special dividend of 75 sen declared in late October is payable on Dec 17. — OSK Research, Dec 11
About Me
- Nuang
- Ibrahim bin Ramli@Nuang started his career with CIMB Wealth Advisors Berhad as Agency Manager in April, 2008.Previously he was an Internal Auditors and Accounts Executive with Perodua Sales Sdn Bhd since 17 August, 1994. His background:- 1.Certified of Achievement for Master Sales Leadership from Dr Lawrence Walter Ng of President of The Art Of Learning and International Of Learning Without Learning 2.Certified for eXtra Ordinary Performance of Lawrence Walter Award Certificate for One Million Ringgit Club 2007 3. Certified Life & General insurances 4. Conferred with Diploma in Business Studiess & Bachelor of Business Admin(Hons)Finance from UiTM, Terengganu Branch & Shah Alam respectively;
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