KUALA LUMPUR (Feb 10): AllianceDBS Research Sdn Bhd has downgraded DiGi.Com Bhd shares to "hold” from “buy” as it sees limited gains in the stock. The recommendation came with an unchanged target price of RM6.60 for shares of telecommunication firm DiGi.

In a note, AllianceDBS analyst Toh Woo Kim said its recommendation and estimates for DiGi
(fundamental: 1.55; valuation score: 2.1) took into account stronger competition from Maxis Bhd and new players in the telecommunication sector.

“New entrants may undercut incumbents’ offerings to gain market share, which may force DiGi.Com to lower its tariff pricing, and pressure margins.

“Maxis Bhd’s renewed focus on enhancing distribution and marketing may carve away DiGi.Com’s current branding, especially from the urban Chinese market,” Toh said.

At 11:04am, DiGi shares was traded flat at RM6.46 for a market capitalisation of RM50.23 billion.

The stock saw some one million shares done.

AllianceDBS' note followed the announcement of DiGi's fourth quarter and full-year financials yesterday. DiGi said net profit grew 2.1% to RM560.1 million from RM548.52 million in the fourth quarter ended December 31, 2014 (4QFY14) from a year earlier.

Revenue increased 4.05% to RM1.8 billion from RM1.73 billion. Profit before tax was lower at RM660.17 million against RM683.32 million.

Full-year net profit grew to RM2.03 billion from RM1.71 billion in the previous corresponding period. Revenue rose to RM7.02 billion compared to RM6.73. DiGi proposed a dividend of 7.2 sen a share in 4QFY14, bringing full-year dividends to 26 sen.

Today, Toh said DiGi's 4Q14 results were largely in line with AllianceDBS' expectation.
 
Looking ahead, the analyst noted that a key re-rating catalyst for DiGi would be a business trust transition that would enable the firm to implement dividend payout ratio of more than 100%

He said a business trust would enable the company to pay dividends based on free cash flow.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)