DiGi reported a 15.5% YoY decline in 3QFY22 net profit to RM264.5m, mainly due to softer topline, higher operating expenditure and higher tax cost. Stripping out non-operating items, normalised net profit was down 18% YoY to RM242m. On a QoQ basis, normalised earnings increased by 13.6%, as revenue remained stable while tax cost was lower. For 9MFY22, results came in within our expectations but below market, accounting for 72% and 69% of full-year estimates respectively. We make no changes to our earnings forecasts. A third interim dividend of 3.4sen per share was declared, bringing total dividend declared to 9.1sen per share (9MFY21: 11.0sen per share). Maintain Neutral with an unchanged TP of RM3.83.
- 3QFY22 revenue was down 3.3% YoY, mainly due to a 6.7% decline in prepaid revenue with ARPU falling from RM34 to RM31. However, prepaid subscriber base increased by 2.5% YoY due to a recovery of the migrant segment. Postpaid revenue improved marginally by 1.3% YoY as subscriber base rose 5.1% YoY on a lower ARPU of RM61 (- 3.2% YoY). Meanwhile, device sales fell 11.6% YoY and we attribute this to limited device launches during the period.
- 3QFY22 normalised net profit dropped 18% YoY, dragged by lower revenue, higher operating expenditure (+2.1% YoY) and higher tax cost (+9.5% YoY) due to implementation of Cukai Makmur. The increase in opex was mainly due to higher operations and maintenance cost. Consequently, net margin declined from 18.7% in 3QFY21 to 15.8% in the current quarter.
- Outlook. After receiving regulatory approval for its proposed merger with Celcom, DiGi is expected to complete the exercise by end of this year. Based on our preliminary estimate, DiGi could see a slight EPS enhancement of about 2% post-merger. Operationally, we do not expect any major impact in the immediate term with management focusing mainly on the integration phase. In the longer run, we believe there are synergies to be reaped in terms of sharing of resources, network optimization and lower procurement cost due to better scale in purchases. Meanwhile, DiGi has recently finalized its agreement to purchase 12.5% stake in Digital Nasional Bhd for RM178.6m. Following this, DiGi would be able to make 5G services available to its customers starting this month but we do not expect take-up to be significant and hence, it is not likely to translate to meaningful earnings uplift in the near term.
Source: PublicInvest Research - 21 Oct 2022