Maybank IB says DiGi price weakness a buying opportunity

From Star Online: Business
28th March 2013

PETALING JAYA: Further weakness in DiGi.Com Bhd's share price closer to the completion of the Time dotCom Bhd (TdC) distribution could be a buying opportunity, said Maybank IB Research.

“We had expected some degree of profit-taking since DiGi was the best performing telecommunication stock last year with a 36% gain. “However, a number of company-specific events have exacerbated the correction, resulting in DiGi being the worst performing telco stock year-to-date with a 13% drop.

“While valuations are not yet compelling, net dividend yields are again looking decent at around 5%.

“Further share price weakness closer to the completion of the TdC 's distribution could be a buying opportunity,” said Maybank IB Research in a note to clients.

This is because, according to the research house, TdC's plan to distribute half the shares it owns in DiGi to its shareholders via a dividend-in-specie might give rise to an overhang on DiGi's stock.

To recap, the 137.5 million DiGi shares from TdC distribution to shareholders represent 1.8% of DiGi's share base.

High Court approval for the exercise was recently secured, and the exercise is now pending TdC shareholders' approval to be likely obtained during the company's EGM in late of the second quarter of this year.

“We expect the distribution to be completed in the second quarter of this year.

“We note TdC would still own another block of identical quantum post distribution, but management has not yet committed to distributing the remaining block,” said Maybank IB Research.

It is also important to note that DiGi was supposed to be included in the FTSE Asean 40 Index on March 18. However, due to changes in FTSE's free float calculation methodology, the inclusion was subsequently reversed on March 11.

“Consequently, DiGi's share price declined, and is presently below the level it was when the index review was first announced,” it said.

Maybank IB Research is maintaining a “hold” on the counter with an unchanged target price of RM4.85.

“Our target price implies 21.6 times price-earnings ratio, 12.5 times enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) and 4.6% net dividend yield in financial year 2013.

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