Investing Which Telco Stock – MAXIS or DIGI?

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Jan 12 2007
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Telecommunications landscape in Malaysia is pretty stagnant, both in terms of subscribers’ growth as well as technology changes (or rather innovation). Telekom Malaysia (TM : stock-code 4863), Time DotCom Berhad (TIMECOM : stock-code 5031), Maxis Communications (MAXIS : stock-code 5051) and the black-sheep, unlisted MITV all have secured their 3G license but it looks like a non-event. Nothing much has move that the subscribers can shout about – the excuse is the companies need time to roll-out.

DIGI.com Berhad (DIGI : stock-code 6947) surprised everyone when it failed to secure a 3G license despite being one of the fastest and profitable mobile phone company – losing to the loss-making Time DotCom and new unlisted pay-TV operator MiTV Corp.

Telecommunications growth in Malaysia has reached saturation considering nearly four out of five Malaysians now own mobile/cellular phone. It’s now depending on these players to increase the value per-user in terms of new applications or services to generate additional revenue.

DIGI.com Berhad – is the clear winner if the stock price is used as comparison amongst the players (stock price jump from RM 7.80 to RM 15.20 in 2006). Based on the estimated 2007 earnings of 106.4 cents per share (EPS), this stock is now trading (based on today’s price of $ 15.90 per-share) at 15 times it’s earning or P/E. But DIGI.com is reported to have the biggest cash pile with lowest CAPEX (capital expenditure) amongst the players.

Maxis Communications – commands the largest domestic mobile market’s pie with a comfortable cash flow from its’ local operations. Trading at P/E of 12 times its’ earning, Maxis provide the cheapest exposure for investors who wish to diversify their portfolio to include a telecommunication company. Unlike DIGI.com which depends solely on its’ parent company, Telenor Asia Pte Ltd to make decision on regional expansion, Maxis needs to worry and ensure any of its’ foreign diversification will create values to the shareholders. It’s investment in Aircel India is already making profits while the Indonesian’ division is still in red.

In terms of dividend, DIGI.com has previously announced a minimum 50% dividend payout policy while Maxis targets distribution of up to 60-65%. Should DIGI.com secured a 3G license, I believe the scenario will be such that all other players will follows what DIGI has to offer – furthermore DIGI.com is the leader in pre-paid market with its’ excellent innovative marketing plan.

Summary of P/E Ratio:

  • Telekom : P/E – 16.1
  • DIGI : P/E – 15.0
  • Maxis : P/E – 10.2

# TIP: Considering the already high price run-up of DIGI, I would be more comfortable with Maxis which has the cheapest P/E and aggressive overseas expansion – not to mentioned its’ status as the largest local mobile company with well political-connection boss. Re-consider DIGI if the stock-price pull-back.

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