UOB Kay Hian Malaysia said on Monday Digi has retraced more than 10% since the stock was removed from the 3Q17 Shariah list on November 2017.
To recap, Digi was removed from the Nov 17 Shariah list as its conventional debt/total assets exceeded the 33% threshold as at Dec 31, 2016.
Digi’s conventional debt/total asset spiked up towards end-2016 due to a drawdown of existing loan facility to pay for the 900Mhz and 1800Mhz spectrum fees – which amounted to RM600m.
Since then, Digi’s conventional debt/total assets have been regulated back to 30% with the establishment of a RM5bil Islamic bond facility (Sukuk) in 2Q17.
The company sees opportunities within the Malaysian prepaid and postpaid segments. This is anchored upon good network coverage and strong distribution network.
“Given the 8% share price retracement year-to-date, we are upgrading the stock to a buy with an unchanged discounted cashflow-based target price of RM5.40,” it said.
UOB Kay Hian Research said stepping into the next two years, Digi sees opportunities within the Malaysian prepaid and
postpaid market segments.
This is anchored on good network coverage (4G LTE and LTE-A at 87% and 55% of population coverage respectively) and an improvement in inbuilding coverage following the additional 900MHz spectrum allocated as of July 2017.
The target postpaid customer base is within the entry-and-middle-income level (average revenue per user (Arpu) of RM50-RM100 per month). Importantly, this will help the group address revenue concentrated within the migrant prepaid segment.
“Management shared that they now have a fairly distributed revenue stream from both the migrant and Malaysian prepaid segments.
“Additionally, management sees opportunities within the postpaid enterprise segment – an untapped market prior to its rapid deployment of 4G LTE network expansion. Apart from network coverage, product (via a new roaming plan, “Freedom to Internet” with Roaming) and innovation (voice over LTE, voice over internet) will help widen Digi’s reach into the enterprise business market,” the research house said.