DiGi.Com Bhd
(Feb 13, RM6.40)
Maintain neutral call with an unchanged target price of RM5.90. Although the sudden change in chief executive officer (CEO) may dampen market perception of DiGi.Com’s leadership stability, we believe the telecommunications company has an effective management team and Albern Murty has the necessary experience to lead it.

DiGi.Com announced the appointment of Murty as its new CEO with effect from April 1.

Murty is currently the chief operating officer (COO) and replaces Lars-Ake Norling, who will be appointed CEO of Dtac (Telenor group’s unit in Thailand).

While the change in CEO was unexpected as Norling was just appointed in August last year, we believe there will be limited impact on DiGi.Com’s operations as Murty is the current COO (appointed on Jan 1, 2014) and has been with the company since 2002.

Before joining DiGi.Com, he held key business and commercial management roles in Lucent Technologies in the Asian region.

Within DiGi.Com, prior to his appointment as COO, Murty was chief marketing officer responsible for driving its overall revenue growth.

He has also held other positions such as head of strategy and new business and co-chief marketing officer.

The change in CEO was unexpected and it is unusual for DiGi.Com to change CEO within a year (previous CEOs: Henrik Clausen was there for four  years, Johan Dennelind [two years] and Morten Lundal [four years]).

Nevertheless, Murty has been COO at DiGi.Com for more than a year and has worked in the company for more than 12 years, which enables significant cultural and operational familiarity with the group.

In addition, DiGi.Com’s effective management team and organisational process will ensure operational and business continuity despite the unexpected change in leadership.

We maintain our “neutral” call on DiGi.Com with an unchanged discounted cash flow (DCF) derived target price of RM5.90.

While we believe the unexpected change in CEO will not have any operational impact on the company,we view its share appreciation in the past year has largely priced in its above-industry earnings growth and potential upside from the implementation of the goods and services tax.

DiGi.Com is currently trading at the historical upper end of its price-earnings ratio and enterprise value over earnings before interest, taxes, depreciation, and amortisation) valuation bands. — PublicInvest Research, Feb 13

This article first appeared in The Edge Financial Daily, on February 16, 2015.