Digi.com Bhd, whose share price has declined by more than 40 per cent in the past year due to sluggish market sentiment, is starting to look attractive again in the eyes of some analysts.
While investors have over the year, sold down DiGi shares in favour of bigger rivals such as Maxis Communications Bhd and Celcom (M) Bhd, analysts refer to the selling pressure in the countrys third largest mobile network operator as overdone.
In fact, the over-selling of DiGi shares has prompted Affin-UOB Securities and OSK Research to upgrade their call on the stock to accumulate and buy respectively.
Affin-UOB has a target price of RM2.60 on DiGi, while OSK Research sees a 12-month target price of RM4.16 due to attractive valuations and anticipated higher earnings in financial years 2003 and 2004.
In a recent report, Affin-UOB says although DiGi remained more expensive on a price to earnings (PE) basis compared with Maxis and Celcom, the company now trades at a 16 per cent discount to regional telco players on an enterprise value (EV) to earnings before interest, taxation, depreciation and amortisation (EBITDA) ratio.
Digis market capitalisation is now a third of Celcoms, 13 per cent of Maxis and under 50 per cent of Time dotComs. At a market capitalisation of RM1.7 billion, DiGi trades at the same value as what TM Cellular is being sold to Celcom for, although DiGi is profitable and has 20 per cent more subscribers, says Affin-UOB.
In general, most analysts see DiGis latest quarter results ended Dec 31, 2002, as largely within market expectations.
For the fourth quarter, DiGi reported a pre-tax profit of RM34.2 million on a turnover of RM369.7 million. Net profit was RM22.9 million, while earnings per share stood at 3.05 sen for the quarter under review. For the financial year 2002, DiGi posted a pre-tax profit of RM145.8 million on sales of RM1.29 billion, while net profit was RM100.9 million and earnings per share 13.45 sen.
According to a report by AmResearchs analyst Fiona Leong, DiGis full year net profit had surpassed its house forecast of RM90.4 million by 12 per cent, although the profit figure was in line with consensus estimate of RM96.4 million.
However, Leong has a hold rating on DiGi shares, with a 12-month target price of RM2.50 as she sees little that would stir excitement in the stock over the next six to twelve months.
She expects DiGi to perform in line with the Kuala Lumpur Composite Index.
Another analyst points out that DiGi share price, valuations and earnings estimates put aside, could gain some ground in the short term over talk of possible corporate manoeuvres to address its free float problem.
It was earlier reported that DiGi might announce a bonus issue to DiGis minority shareholders, with the two main stakeholders, Telenor Asia and tycoon Tan Sri Vincent Tan Chee Yioun, which hold 61 per cent and 21 per cent respectively, being paid in cash in lieu of shares.
But in a reply to the Kuala Lumpur Stock Exchange (KLSE) on Tuesday, DiGi said it has not made any plans for a bonus issue for its minority shareholders.
Analysts, however, are not convinced that this is the end of the matter. DiGi has until June this year to meet the 25 per cent free-float requirement. The deadline to meet this requirement has already been extended four times.
DiGi still has to come out with a plan to address the small free-float of 18 per cent compared with the minimum 25 per cent requirement set by the KLSE. While a bonus issue is not installed for the moment, the major shareholders can still come out with other plans such as a private placement exercise, says an analyst.
A dealer also agrees, saying that it was possible for Telenor to divest part of its 61 per cent stake, as the Norwegian company needs to reduce its shareholding in DiGi to 49 per cent by 2006.
Market observers note that Tan has been accumulating DiGi shares, amounting to more than 7.6 million shares, through open market purchases and married deals.
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