Citi revises target price for DiGi downwards

 

Citi Investment Research revises its target price downwards to RM18 from RM28 previously, citing the market rout and disappointing third-quarter results

CITI Investment Research has downgraded DiGi.Com Bhd stock from a "buy" to "sell", partly due to current weak market sentiment and its disappointing third-quarter financial results.

"We believe DiGi will struggle to defend lofty valuations in light of the current market rout and follwing what we see as disappointing third-quarter results.

"At its current share price (of RM22.20 on October 22), DiGi trades at 14.8 times 2009 PE (price-earnings ratio), a 60 per cent and 63 per cent premium to the KLCI (9.27 times) and regional wireless peers (9.1 times), respectively," said Citi Investment Research in a report on Monday.

It has revised its target price downwards to RM18, from RM28 previously. It has also cut its earnings per share (EPS) forecast for 2008-2010 by 4.8 per cent to 10 per cent, mainly on lower Ebitda margin assumption.

"We now value DiGi on a PE of 12 times 2009 estimate earnings compared with 17.4 times 2008 estimate earnings previously. The much lower multiple reflects higher risk premiums ascribed as a result of global equity market rout.

"However, at 12 times, we continue to believe that DiGi deserves to trade at a premium to the market given its strong balance sheet and free cash flows, desirable attributes especially given currently poor global credit conditions," it said.

DiGi is keeping its 2008 key performance indicator growth target unchanged and expects a bounce in earnings in fourth quarter, its management told analysts during a recent conference call.