PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 25 Nov 2020, 10:24 AM


Digi. Com - Stronger Contribution From Prepaid Segment

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DiGi reported a 10% YoY decline in 3QFY20 net profit, largely due to higher depreciation cost. Noticeably, earnings improved by 11% QoQ on higher revenue, primarily the prepaid segment which posted a 10.2% increase. Prepaid ARPU improved by 10% while 67K was added to subscriber base, sequentially. This suggests some measure of success in efforts by DiGi to grow its Malaysian base to offset the shrinking migrant business. The results were broadly in line with expectations. A third interim dividend of 4.1sen per share was declared (3QFY19: 4.5sen). DiGi provides the most attractive dividend yield among the telco companies under our coverage. For FY20F, we are projecting a yield of 4% for DiGi, compared to sector average of c.3%. Maintain our Outperform rating on DiGi.

  • 3QFY20 revenue improved by 1.1% YoY. Mobile service revenue fell 2.8% YoY due to lower postpaid revenue (-6.1% YoY) with ARPU falling by 5.6% on a 1% increase in subscriber base. This was offset by higher device sales which jumped 37.6% YoY to RM205m. Meanwhile, prepaid revenue was flat. However, on a QoQ basis, prepaid segment delivered an impressive growth of 10.2% on the back of higher ARPU (+10%) and subscriber base (+0.9%). DiGi’s latest product launches, DiGi Abadi and DiGi Prepaid NEXT, have received positive traction from priceconscious consumers as they allow the access to high speed internet connectivity via bite-size data passes.
  • 3QFY20 net profit fell by about 10% YoY. Cost of goods sold increased by 17.6% YoY on higher expenses related to devices and digital services. Meanwhile, opex increased by 3.9% YoY as the previous year included a non-recurring cost of RM17m. Depreciation cost rose 6.8% YoY as DiGi continues to invest in network expansion. An additional RM12m provision for doubtful debt was recognized due to the group’s commitment to manage bad debt risks in the current challenging economic environment. EBITDA margin was lower at 50.0% compared to 53.4% in 3QFY19.
  • Our preferred pick due to its stable earnings and attractive yield. In our universe of coverage, DiGi provides the highest dividend yield of c.4% (sector average: c.3%). We believe this is sustainable as DiGi’s revenue stream is relatively more stable while cost optimization has always been a key focus of the group. Meanwhile, DiGi continues to invest in modernizing and expanding its 4G coverage network. It has established collaborations with Celcom, Telekom Malaysia and Time dotCom to expand its fixed broadband footprint, provide connectivity for business solutions, wholesale and fibre to home. Recently, DiGi announced a partnership with ZTE Corp for its nationwide Radio Access Network modernization, paving the way for improvement in network capacity and customer experience as well as catering for the eventual adoption of 5G technologies.

Source: PublicInvest Research - 19 Oct 2020

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DIGI 4.15 -0.02 (0.48%) 2,519,000 

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