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Tokking about Digi, it consistantly outperform the analysts. Now per financial analysis, it still has RM1.64 cash per share, most likely is distribute-able again.
putting the company fundamental aside and look at technology terms (the Wimax vs 3G), for near term, this wireless broadband still won't be playing a significant role in contributing to the botom line earnings, we are probably not yet a nation like Japanese who uses the 3G benefits and service extensively.
Maybe in this 2 to 3 yrs time, we do not need to factor in 3G/Wimax when valueing Digi. But in longer term, it is definitely a must that Digi has to go in 3G or Wimax to roll out more wireless broadband services, to compete with Maxis and Celcom. what about competing with TimeDotCom? I dun give a damn on TimeDotCom
Ride on the tidal wave of Digi, at least for another 1 to 2 yrs, and make as much $$ as you can.... my problem is, I have missed the Digi boat dont even have a lot in my hand. Can only watch from distance.
2 yrs ago, i always thought that being a Telco, they always need to fork out SUPER LARGE capital to roll out the new technology (2G lah, 2.5G lah, now 3G and wimax lah), and foresee fierce competition among the top 3 telcos, and net profit will shrink like crazy...seems like I'm wrong. Digi has proven it self again and again in a small and saturated celular market as in Malaysia.
Moving ahead, where will the growth for Digi come from?
Saw that CIMB gave some good pointers in their write-up. And the following are some interesting points.
1. Revenue may dip.
Revenue may dip for one month. We gather that the worst-case scenario from the registration of prepaid cards is that revenue may be affected in the first month after the 15 Dec 06 deadline for registration. This means that revenue in 2H Dec may be hit. We concur with this view given Malaysians’ general lackadaisical attitude towards deadlines. Going by the eleventh-hour queuing for the Mykad identity card, we anticipate a last-minute rush to register prepaid cards when subscribers find themselves barred from making calls.
Good point. The prepaid card is still DiGi's bread and butter. The 15 Dec 06 deadline is fast approaching. And will there be an impact? Argument? Currently there are lot of prepaid users who has a reason or two for not registering their prepaid cards. And what's the size of such users are we talking about?
2. They argue that CIMB has the money and the credit facility to continue their generous wealth distribution...
DiGi has yet to tap into its credit facility of RM700m, which is:
• intended to help it right-size its balance sheet, which is currently underleveraged.
• part of its capital management initiative.
We believe there is one more leg to its capital management, i.e. a gearing up by the cellco and a return of excess cash to shareholders. Based on our estimates, DiGi could return RM1.60/share if it pursues a net gearing of 0.4x.
Not sure I agree with this part of using the credit facility to help the cash distribution. In my opinion, this is a no-no. Cash distribution should always be generated from the company's own cashflows.
3. The shareholding issue.
No new developments on shareholding
Foreign and bumiputera shareholding requirements. DiGi has to fulfil a 30% bumiputera shareholding requirement while Telenor must sell down its shareholding from 61% to 49% by Dec 06. Management offered little insight into whether any of these requirements will be relaxed or waived
Is NO news good news?
4. Capex.
Lower capex? Lower capex in FY07. While it has not formally issued a capex guidance for FY07, DiGi indicated that capex/revenue and absolute capex for FY07 should be lower than in FY06. This capex assumes zero spending on 3G and WiMAX. We have assumed capex of RM650m or 16% of revenue in FY07 vs. RM700m or 20% of revenue in FY06. Hence, we think there is upside potential to DiGi’s FY07 capex should it secure the spectrum for WiMAX.
Hmm... here is a concern. Telecommunication business for me right now is all about what's hot. Telco's needs to spend to satisfy their consumer demands. So for me, a lower capex is a concern. If you do not spend, you will not be able to compete and in the long run, you will lose market share.
The key risk to our recommendation is the share overhang from the requirement for Telenor to sell down its stake to 49%. That said, we expect DiGi to announce a further capital management initiative before Dec 06. DiGi’s second capital repayment of RM0.60 is expected to be completed end-06.
in an industry where u need to spend lots of monies in order to protect your market share, it seems not an ideal investment for me. i prefer the business which could earn monies and most of them goes to the pocket of shareholders rather to feed suppliers....etc. Though, this kind of investment is indeed VERY RARE.....
5,6 years ago, we talked about WAP, then GPRS and now 3G and WiMax and possibly WiBro. How about 4G? if we fast foward 5,6 years later, we might talk about 5G or??? in the industry where the technology is ever changing so fast and huge capital layout needs to be carried out in order to satisifed the customers, the only beneficiaries are suppliers and customers, not investors....as an ordinary investor, i dare not invest in those companies though they could generate a handsome cashflow....look at the case of LG-Philips LCD panel JV, 1 or 2 years ago, it secured a handsome profit but recently it seems making loss -- it's not surpise as the price of LCD TV going south as competition is stiffer and the investment to set up the manufacturing plant is so expensive and the lifelihood of the equipments to produce those panels are shortlife.....as you could see in chips industry where a year ago, the diameter might be 0.13 micron, today, it is o.10 micron. that means? investment need to be carried out to invest the upgraded machines or equipments to produce those chips.....and the investment is like a black hole to drain monies into it......
5,6 years ago, we talked about WAP, then GPRS and now 3G and WiMax and possibly WiBro. How about 4G? if we fast foward 5,6 years later, we might talk about 5G or??? in the industry where the technology is ever changing so fast and huge capital layout needs to be carried out in order to satisifed the customers, the only beneficiaries are suppliers and customers, not investors....
Hi,
Extremely good points.
The uncertainty surrounding the sustainability of DiGi is always in doubt from day one. As mentioned, in my opinion, Telecommunication business is all about what's hot. Telco's needs to spend to satisfy their consumer demands. So for me, a lower capex is a concern. If you do not spend, you will not be able to compete and in the long run, you will lose market share.
Failure to understand this issue means that the investor does not understand the risk behind the business. Technology changes. Demand changes. And ultimately these changes could have a potential severe impact on the long term sustainability of the companies earnings. Which simply means what is good now might not be good in the future.
The mobile operator aims to spend between RM300 million and RM400 million to set up as many as 150 towers in Peninsular Malaysia, of which 80 per cent for own use
I am not good in technology...wimax, 3G and etc. I also dont want to discuss about competitiveness of DIGI. However i do invest some in DIGI. What i am betting??
Is change of appraisal happen to DIGI.
Net profit 2004 = 317 m, eps = 42.3 sen
Net profit 2005 = 471 m, eps = 62.8 sen
market price Sep 2005 = 575
market price Sep 2006 = 1200
From FY04 to FY05, net profit of DIGI increased by 49% (not bad at all), but the share prices of DIGI is more that double. What causing share prices of DIGI double??
I am betting of what Phipip Fisher called as change of appraisal.
Over the years, digi never pay a single sen to its shareholder as dividend after Telenor took over. A lot of people also of opinion that digi, as the smallest telco among the three, is not able to fight with maxis and celcom.
However digi has proved that it can compete together with maxis and celcom. Nowaday, package digi offered is more innovative. Most of the times, even maxis has to follow what digi is offering. Digi in certain extent has change the rule of the game. Some more it has declared 2 capital repayments and it also commited to payout 50% of the future profit to the shareholders.
So, the investing community has changed their opinion on digi, they start appreciate the appeal of digi. When this happens, we called it as change of appraisal. It is the change of appraisal causing the share prices of digi being doubled.
This is the totally different school of thought from what u always shared in your blog.
Last edited on Thu Sep 28th, 2006 12:25 by 2ndbrother
Over the years, digi never pay a single sen to its shareholder as dividend after Telenor took over. A lot of people also of opinion that digi, as the smallest telco among the three, is not able to fight with maxis and celcom.
However digi has proved that it can compete together with maxis and celcom. Nowaday, package digi offered is more innovative. Most of the times, even maxis has to follow what digi is offering. Digi in certain extent has change the rule of the game. Some more it has declared 2 capital repayments and it also commited to payout 50% of the future profit to the shareholders.
So, the investing community has changed their opinion on digi, they start appreciate the appeal of digi. When this happens, we called it as change of appraisal. It is the change of appraisal causing the share prices of digi being doubled.
This is the totally different school of thought from what u always shared in your blog
2ndbrother,
Many thanks for your opinion. I do read and I do enjoy Fisher's work but it's complicated and if I have to talk or write using Fisher work, I tend to get too overly optimistic which could lead to serious misunderstanding. Hence, I rather not.
anyway.. this change of appraisal you talked about. What's causing it? What's causing the change of attitude?
hot event was here right???? net profit increased thru various reasons... and here comes the intense PROMOTION thru news media FOCUSING on DIGI.
Here's one clip...
Wednesday November 2, 2005
DiGi back in favour with investors
BY B.K. SIDHU
JUST a year ago, some analysts downgraded DiGi.Com Bhd for fear that the heightened price war in the local mobile industry would eat into its margins. But, today, the smallest of the three cellular players in the country is fast becoming a darling among investors again.
Much has to do with its impressive set of third-quarter (Q3) financial results the company announced last week.
Innovation, brand promise and promotional activities drove up the numbers, and analysts now appear more convinced that DiGi’s earnings model is proving to be sustainable.
What excited them more were the dividend policy and capital repayment announcements DiGi made. Based on the net income forecast, analysts are expecting an 8% yield for financial year ending Dec 31, 2006 (FY06) and, when combined with the 75 sen capital repayment, they expect a 20% yield.
here is another.
DiGi's net profit, which surged 73 per cent to RM142.9 million for the period ended September 30 2005, was beyond many analysts’ expectations
DiGi emerges as key challenger to Maxis
By HO SIEW YEE November 5 2005
DIGI.COM Bhd, the smallest player in the country’s mobile telecommunications industry, is now seen as a key challenger to dominant rival, Maxis Communications Bhd, after its sterling third quarter performance came as a big surprise to all.
Shares of DiGi rose to their highest in five years to close 70 sen, or 11.3 per cent, higher at RM6.90 on October 27.
key factors focused: 20% yield, net profits up some 73%!!!!!!!
and another...
Saturday November 5, 2005
DiGi dazzles analysts
BY HARI RAJ
AS the major players in the telecommunications industry pull trick after trick out of surprisingly voluminous sleeves in their battle for superiority, DiGi.com Bhd looks to have stolen a march on the competition.
The company's recently reported results dazzled the analyst community by coming in some 23% above market forecasts. The cherry on top was the announcement that DiGi was set to make its maiden dividend payout, further whetting investors' appetites.
For the third quarter of its financial year ending December 2005, DiGi recorded a net profit of RM142.89mil on the back of RM744.87mil in revenue, representing increases of 73.2% and 29.1% respectively over the previous corresponding quarter.
If that wasn't enough, the company's revenue for the first three months of this year now stands at RM2.06bil, from which it has derived RM314.35mil in net profit. Once again, these figures represent a substantial increase over the previous corresponding period, to the tune of 26.3% and 41.5% respectively.
Someone jumped into digi because the profit has increased substancially. (Growth prospect)
Someone jumped into digi because the repayment and dividend it offered. (Dividend yield)
Someone jumped into digi because they like what is already good.
Change of appraisal would not happen if only a few guys have changed their perspective on a particular stock. It happens because the investing community has changed their perspective on the stock.
So, i am betting what other people is betting on. I am betting on the behavior of the investing community. Of cause before applying this method, u have to sure that that stock is foundamentally strong in term of cash flow & management.
U definitely not a stock promoter, i am of opinion that u are more like a stock condemn-tor .....ha....ha...(talk more on the bad things)
Last edited on Fri Sep 29th, 2006 01:48 by 2ndbrother
Yeah, I really do understand what you were betting on and I do think that your reasonings were pretty much valid.
ps..
in the very near future... you will have to address the issue of what's next for DiGi. And this is where it could get complicated. The shareholding issue has to addressed before year end. What will happen? I have no idea. And then the competitiveness or the sustainability of DiGi's earnings cannot be discounted and i believe that it needs to be addressed for it's a key issue. For example, the bread and butter for DiGi was their so-called 'name-less' pre-paid cards. This was where it got popular. But pretty soon registration of real names will be required. How big is the impact? I have no idea yet. And the changes of technology; the effects of wimax, 3G etc etc... all this.. cannot totally discount woh because if the consumers could have a drastic impact if their taste bud changes which sees them choosing a different platform. So what if DiGi does not have or are not given that license to have that technology? This is the business risk. And if it does have an impact, DiGi's bottom line could be hurt.... and when it does happen, then the investor might not see the stellar growth nor the strong dividend policies.
these are the issues i might worry about...
( just sharing my current thoughts on it... and this is not an issue of right or wrong hor... )
dont even have a lot in my hand. Can only watch from distance. 
