051 Digi Annual Report 2014

I recently added Digi into my portfolio and intends to hold it for long term. One of the thing that strike me was the price movement chart. For a period of 5 years, the market price has appreciated. And I say to myself, if I were to hold a stock for long term with no worry, this should be it. I have long heard Digi is a generous dividend stock.

So, I bought it and got my first dividend of 7 sen per share.

Yesterday, I received my first Digi annual report. I read it.

Since the correct attitude to holding a stock to be buying a business behind it, or simply said joined as shareholder of the business - it is of utmost importance to know the business. The price of a share will reflect the business performance. It can be depressed for a long time, but over time, it will reflect the business. Remember this.

I can see Digi's subscribers base, revenue, net profit has been rising. Cost and depreciation & amortization has been kept in control. Digi is also spending on capex to expand its 3G and LTE network.

Look at the earnings per share (EPS) and dividend per share (DPS), they are rising. One of the things that I learnt from Warren Buffett's letter to shareholders is to link the EPS and DPS. The difference between EPS and DPS is called retained earnings. If a company earns 10 sen per share and only give out 6 sen per share, the 4 sen is called retained earnings. The company will then use the retained earnings to further grow the company business. Warren taught me that if the company use the retained earnings to grow more earnings. then it make sense to let the company retains the earnings. Else, it would be better to request the company to pay out the earnings as dividend because shareholder may have better investment.

So, I am impressed to see Digi distributed almost 100% of its retained earnings and, can, still grow further. I think this is a company that is worth owning. Over a five year period, their market price grew +277% compared to +66% of KLCI. I would be satisfied to see my holding grow, even only, 100% in 5 years.

Digi's financial summary is also very clear. I can see some basic info in a glance. I think a company which is willing to show its financial position is honest with its shareholders.

My reflection:- We investors like to chase against, and act upon, share price fluctuation - buying and selling unnecessarily. The frequent trading does not only cause us to pay more brokerage fees but also lose out on the long term market value appreciation. As for now, Public Bank, Lonpac Insurance (LPI) and Digi has proven to me holding their stocks, for long term, generate outstanding returns without fear.