PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 14 Nov 2019, 9:44 AM


Digi.Com - Dragged By Lower Prepaid Revenue & Higher Cost

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DiGi reported a lower 3QFY19 net profit, down 9.3% YoY mainly due to lower revenue and higher cost as a result of the adoption of MFRS 16. Revenue was 2.3% lower while expenses rose 15.4%. The decline in revenue was mainly due to an 11% decline in prepaid revenue, particularly the non-internet prepaid. Meanwhile, the increase in cost was due to higher depreciation and interest costs. The 9MFY19 results were in line with expectations, accounting for 72% and 75% of consensus and our full-year estimates respectively. Our earnings forecasts remain unchanged. We reiterate our Neutral rating on DiGi. A third interim dividend of 4.5sen per share was declared (3QFY18: 5.0sen).

  • 3QFY19 revenue dropped 2.3% due to an 11% and 3% decline in prepaid revenue and device revenue respectively. The fall in prepaid revenue (mainly due to lower non-internet prepaid revenue) was driven by lower subscriber base (-8.1% YoY) as well as lower ARPU (-6.5% YoY). Stronger postpaid revenue has helped to cushion the impact of lower prepaid contribution, delivering a growth of 10.4% YoY. Although postpaid ARPU has declined by 6.6% to RM71, its customer base expanded by about 10% to 3m, attributable to its focus on customers’ demand through the offering of easy device ownership programs and family plans. Note that the split between prepaid and postpaid revenue stood at 53:47, compared to 58:42 in 3QFY18.
  • 3QFY19 net profit fell 9.3% YoY, mainly due lower revenue and higher cost. The bulk of the increase in cost was due to the adoption of MFRS 16, which led to a 51% jump in depreciation and amortization charges as well as doubling of net finance cost. As a result, net margin dropped from 27% in 3QFY18 to 25% in the current quarter.
  • Collaboration to improve internet connectivity. Despite the failed merger plan with Axiata Group, DiGi remains committed to collaborate with other telco players in areas like 5G and nationwide connectivity. Recently, DiGi and Telekom Malaysia (TM) have agreed to work together to improve internet accessibility, as part of the National Fiberisation and Connectivity Plan (NFCP). This agreement involves the utilization of submarine cables (SKRM) that was jointly developed by TM and MCMC as well as TM’s >7,000 hotspots nationwide in providing WiFi connectivity. Nevertheless, this is not likely to be high-margin project as it is catering to the less profitable and low traffic underserved areas. Any potential earnings contribution is expected to be small relative to its existing businesses.

Source: PublicInvest Research - 21 Oct 2019

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