from kenanga
DIGI: Its
2QFY2013 higher revenue was driven by increasing mobile internet usage. Some 64%
of its subscribers are mobile internet users while smartphone penetration stood
at 30.4%.
DIGI’s strategy to bundle
voice and SMS into its data packages appears to be paying off, offsetting the
decline in SMS revenue a subscribers turn, increasingly to messaging apps such
as Whats-App. Voice revenue appears to have stabilized.
In tune with the global trend
data, data consumption will continue to grow as more users upgrade from feature
to smartphones coupled with increasing proliferation of tablet devices. Faster
network speed and better consumer experience will further promote data usage.
The average data consumption for smartphones is on an upward
trajectory.
DIGI is positioned to capture
this growth now (July 2013) that it has almost completed its network
modernization exercise. The company has expanded its 3G coverage to 72% of the
population and it is targeted to reach 75% by end 2013. The joint built fibre,
with Celcom too is progressing well with some 1012km completed.
After the same time, the
company has also started rollout for the next generation LTE network, beginning
with the Klang Valley and it is slated to reach 1500 sites by end
2014.
While DIGI is not expected to
excite with a blazing pace of growth, expect the company to report decent
earnings expansion going forward. Its strong cash flow would also ensure steady
and consistent dividend payments.
At the prevailing price of rm4.63, the stock
is trading at lower valuations compared with Maxis and at just a slight premium
to M1 and Starhub. Earnings for all telcos are predominantly domestic based
whereas Axiata and SIngtel have wider geographical footprints. Overseas
expansion offers the potential for stronger growth but also carry higher
risks.
Although DIGI’s dividend
yield for the current year (FY2013) is comparatively lower, there is a good
chance for dividend growth gong forward. Due to the company’s limited reserves
(following bumper dividends and capital repayments over the past few years),
dividend payments are capped to annual earnings.
Given DIGI’s track
record for returning excess cash to shareholders, estimates the company will pay
out all of its profits
Note that should DIGI adopt a
business trust structure – a move that is currently (July 2013) – the total
dividends payable would likely exceed its existing estimates.
DiGi.Com Bhd is set for
higher margins in the second half 2013 with potential for more capital
distribution if it adopts a business trust structure.
The ending of
additional operations and maintenance expenses relating to network upgrades in
second half of 2013 would give a lift to DiGi’s margins. This also sets a higher
(margin) base for 2014, and is a catalyst for a
re-rating.
At higher levels of payout
from DiGi going forward, as its parent Telenor will be making significant
investments in Myanmar. There is a high probability that DiGi will take on a
business trust structure which will enable it to distribute more capital (as it
will benefit Telenor).
Sunway REIT: There are a myriad factors that would
likely temper interest in REITS at least in the near to medium
term.
Key among the issues is expectations of a gradual
normalization of global interest rates from historic low levels as the US starts
to roll back its aggressive monetary policies. Rising yields on risk free
government bonds would render fixed income bonds and high yielding stocks less
attractive.
Generally speaking, the latter category should fare
comparatively better expectations that corporate earnings growth will translate
into higher yields – and yields – over time. IN this respect, REITs could face
some challenges.
High property prices make it difficult for REITs to
expand via acquisition of quality, yield accretive assets. In the absence of new
acquisitions, REITs would be dependent on organic rental increases to drive
earnings.
For Sunway REIT, its earnings over the next two years
from Aug 2013 will be affected by major asset enhancement initiative, currently
(Aug 2013) ongoing for the Sunway Putra Mall. The trust acquired Sunway Medical
Centre at end 2012 and income from the property will help partially offset the
loss of earnings from Sunway Putra Mall.
Expect distribution per unit to drop in 2014 and
2015.
Occupancy and rental outlook for the office segments is
downbeat on the back of forecasts of space over supply over the next few years
from 2013. This will translate into limited income growth for many of the office
focused trusts.
Office properties in Sunway REIT’s portfolio saw pressure
in its last financial year ended June 2013. With a significant portion of leases
up for renewal in FY2014 and FY2015, earnings could see further downside
risks.
Sunway’s REIT’s hotel assets also fared poorly in FY2013
with revenue down on the back of lower occupancy. The trust is relying on its
retail assets to be the primary driver for the growth.
Revenue from its four retail assets, combined was up 1.3%
year on year contributing to 71% of Sunway REIT’s total revenue in
FY2013.
Sunway REIT’s flagship Sunway Pyramid shopping mall
registered 18.1% rental reversion for leases renewed in FY2013 which accounted
for about a quarter of total net lettable area. The shopping mall alone
contributed to 57% of total turnover for the trust.
With another 52.5% of its leases due in FY2014, Sunway
REIT is banking on FY2014 rental, reversion to sustain earnings – partially
offsetting the loss of income from Sunway Putra Mall which is close for two
years from 2013 for extensive refurbishment. Refurbishment works are likely to
affect occupancy at its adjoining hotel and office tower.
The trust has earmarked some rm500 million in capex over
the FY2014 to FY2015 for various AEIs. Other than Sunway Putra Mall, it is also
undertaking AEI at Sunway Pyramid which will see some 20362 sq ft of additional
retail space.
Going forward, new retail space, with a number of
sizeable shopping malls coming into the market amid slower consumption, could
pressure overall occupancy and future rental increases.