Fundamental Analysis of DIGI.COM BHD by L. C. Chong https://lcchong.wordpress.com/ https://www.facebook.com/groups/285121298359919/

1. DIGI
FUNDAMENTAL ANALYSIS
Financial Year 2014 (31 Dec 2014)
11 November 2015
L. C. Chong

2. DISCLAIMER
I am NOT an investment advisor nor a financial advisor, and no information provided
here is to be interpreted as a suggestion to buy or sell securities.
Stock analysis in this presentation may not neutral because I have incorporated my
risk appetite and principles in the analysis.
2

3. DECLARATION OF INTEREST
• At the time of writing, I owned shares of DIGI.

4. KEEP IN TOUCH
http://lcchong.wordpress.com
https://goo.gl/jjkq4P

5. SCOPE
• Figures and ratios are based on the figures reported in Annual Report or the latest
Q4 Quarterly Report (QR)
• Unless there is a need, this analysis will not include financial figures reported in Q1,
Q2 and Q3
• I will provide QR result highlights in my blog
• Valuation is not covered in this analysis
• I will provide valuation in my blog.

6. CHANGES
• 22 Oct 2015 – First write up of DIGI in PowerPoint format
• 3 Nov 2015 – Removed peer comparison
• 11 Nov 2015 – Applied new template

7. REFERENCES
• Telco (KLSE) – Peer Comparison

8. BUSINESS PROFILE
• This company is involved in the establishment, maintenance and provision of mobile
telecommunication services and its related products in Malaysia.

9. OWNERSHIP SUMMARY
CORPORATIONS (PUBLIC)
50%
INSTITUTIONS
34%
PUBLIC AND OTHER
14%
INDIVIDUALS/INSIDERS
1%
STATE OWNED SHARES
1%

10. TOP 5 SHAREHOLDERS
TELENOR ASA
68%
EMPLOYEES PROVIDENT
FUND OF MALAYSIA
18%
PERMODALAN NASIONAL
BERHAD
7%
KUMPULAN WANG
PERSARAAN
4%
PUBLIC MUTUAL BERHAD
3%

11. OWNERSHIP ANALYSIS
• Main shareholders of DIGI are Telenor ASA and institutional funds
• DIGI is covered by a lot of local and foreign analysts
• This provides quite a good liquidity to this shares.

12. ECONOMIC MOATS
• Cost Advantage
• Lower ARPU if compare to MAXIS and CELCOM. However, DIGI got the highest net profit
margin
• Switching Costs
• Nowadays, changing Telco is piece of cake. However, good coverage service will retain
subscribers longer.
• DIGI coverage is still not as good as MAXIS and CELCOM, but DIGI makes great efforts
to improve their network.
• Since Jun 2013 (after they upgraded few thousands of stations) , I have much better
experience in using their data services, and I am no longer experience call drop while
driving.

13. ECONOMIC MOATS (CONT.)
• Network Effect
• DiGi has established an integrated distribution approach across all its owned shops,
exclusive stores, dealers and alternate channels. This in-depth cluster performance
management structure will assist DiGi in driving prepaid while strengthening its postpaid
and broadband
• With the stronger organisational capabilities, DiGi is well-placed to further maximise
revenue and optimise its infrastructure use. Furthermore, this will provide greater
opportunity for DiGi to address dedicated and segmented offerings to customers as well
as design dedicated below-the-line (BTL) campaigns and engagements
• Statistics shows that DIGI subscribers are increasing over the years. Still got room of
improvement.

14. ECONOMIC MOATS (CONT.)
• Intangible Assets
• DiGi placed significant importance on sustainable operational efficiencies to support its
growth and to deliver the best customer experience.
• Cost of goods sold and operational expenditure were managed prudently, driven by
strong cost management discipline throughout the organisation, with visible efficiencies
obtained from the recently completed network modernisation exercise.
• High ROIC and CROIC above 15% in the past 9 years - This is a proof of excellent
operational efficiency in DIGI.
• Efficient Scale
• Not applicable or not found

15. ECONOMIC MOATS (CONT.)
2005-12-31 2006-12-31 2007-12-31 2008-12-31 2009-12-31 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
ROIC 18.2% 29.1% 38.9% 40.9% 36.1% 41.6% 43.8% 53.1% 82.1% 92.5%
CROIC 38.0% 37.0% 33.0% 45.4% 30.3% 56.8% 65.6% 73.4% 69.4% 88.3%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
ROIC AND CROIC
• Very high ROIC and CROIC
• Very high in generating profits and
cash flow

16. PROFITABILITY
44.8%
46.8%
46.7%
45.5%
45.3%
43.5%
44.0%
44.5%
45.0%
45.5%
46.0%
46.5%
47.0%
47.5%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Revenue and Margin
Revenue EBITDA Margin %
Based on Moody’s standard,
DIGI’s EBITDA margin is rated as
Aa

17. PROFITABILITY (CONT.)
• From FY10 to FY14, DIGI’s revenue has been growing 6.4% annually in average, and
DIGI was able to maintain EBITDA margin more than 40%
• In FY13 and FY14, DIGI’s EBITDA margin declined slightly. Reasons:
• Higher marketing costs
• Higher customer acquisition costs (via heavy handset’s subsidies)
• Higher capex in modernized its network
• FY14 – RM900 million
• FY15 – RM200 million

18. LEVERAGE & CASH FLOW
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
0.00 x
0.10 x
0.20 x
0.30 x
0.40 x
0.50 x
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Leverage & Cash Flow
Debt / EBITDA RDF to Debt % FCFF to Debt %

19. LEVERAGE & CASH FLOW (CONT.)
• In the past few years, in order to modernizing its network and increasing its market
share, DIGI has been taking some gearing
• FY14’s Debt/EBITDA – 0.33x (Aaa)
• FY14’s RCF/Debt – 125% (Aaa)
• FY14’s FCFF/Debt – 182% (Aaa)

20. COVERAGE
34.46 x 33.14 x
43.91 x
53.45 x
59.24 x
50.41 x
44.73 x
59.82 x
73.61 x
85.07 x
0.00 x
20.00 x
40.00 x
60.00 x
80.00 x
100.00 x
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Coverage
(EBITDA-CAPEX)/ Int. Exp. (FFO+Int. Exp.)/ Int. Exp.
By Moody’s standard, DIGI’s
coverage is rated as Aaa. This is
extremely healthy.

21. GROWTH DRIVERS
• 26 Oct 2015 - Digi mulling Voice-over-LTE (VoLTE) services in 2016
• Digi would be the first mobile network operator (MNO) to rollout VoLTE in Malaysia
• There is a possibility that users might need to pay more with VoLTE. This could help
battle the decrease in average revenue per user (ARPU). Digi’s ARPU has been under
pressure since 2013, decreasing to RM46 from RM48 in 2013.

22. GROWTH DRIVERS (CONT.)
• 13 Jul 2015 – DIGI strategically invested another RM200 million in capex to boost its
data network coverage and quality with extensive 4G-LTE coverage available in all
its key market centres
• 9 Apr 2015 – TM and DIGI will tap each other’s customer base through a
collaboration involving TM’s Internet Protocol television (IPTV)

23. GROWTH DRIVERS (CONT.)
• 27 Apr 2015 – Data traffic volume has increased to 19,900 terabytes (TB) against the
previous years’ 9,900TB. With long-term evolution (LTE) network coverage rapidly
expanding to more than 33% of the population, there will be increased data growth
opportunity especially when the LTE network is now made available to prepaid
subscribers.

24. ISSUES/RISKS/CHALLENGES
• Potential irrational competition, especially in the prepaid segment, from U Mobile,
MVNOs and OTT players.
• Potential margins pressure as a result of the higher customer acquisition costs (via
heavy handset’s subsidies)
• Higher marketing costs to retain market share which may further pressure
profitability
• Regulatory risks – regulation of tariffs
• FOREX – The weakening of MYR has also resulted in higher IDD traffic cost

25. ISSUES/RISKS/CHALLENGES (CONT.)
• Unable to monetize data
• Worse than expected voice tariffs
• Dumb pipes – Operators like DIGI and Maxis cannot offer their traditional services
(such as downloads of wallpapers, ringtones, games, applications, etc.) as Apple
controls the total iPhone user experience.

26. SWOT ANALYSIS
Source: http://klse.i3investor.com/blogs/rhb/66184.jsp

27. SHAREHOLDER RETURN
Time Frame Date Bought at Original
Value
Dividend
Received
Unrealized
Gain/Loss
Current
Return
CAGR %
3-Y 19 Oct
2012
5.48 5,480 738 220 6,438 5.5%
5-Y 21 Oct
2010
2.46 2,460 11,240 54,540 6,8240 94%
10-Y 21 Oct
2005
0.475 475 20,309.10 56,525 77,309.1 66%
Assumptions:
1. Commission paid is ignored in this simulation
2. The current price is 5.69 (as of the time of writing)
3. Unit purchased is 1,000.

28. SHAREHOLDER RETURN (CONT.)
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
DPS
CAGR – 9.8%
Growth

29. SHAREHOLDER RETURN (CONT.)
• In the past 10 years, DIGI maintains more than 100% dividend payout. High
dividend payout makes DIGI a defensive stock
• 4 Mar 2015 – DIGI plan to set up a business trust to increase the
telecommunications giant’s capital efficiency and return excess cash to shareholders
remains “on track”.

30. GOING FORWARD
• Digi possesses a strong management team
• The group has managed to compete with its peers despite its subservient position
in the spectrum allocation domain
• This is shown in its ability to move in-tandem with the demand of the market, especially
the prepaid segment
• Aggressive price competition as well as pressure on consumer wallet has impacted
the mobile network operators
• The 2015 guidance remained intact as follows:
• Low to mid single digit service revenue growth
• Sustain EBITDA margin and Capex similar to 2014 level