Digi’s FY18 core net profit of RM1.5bn was in line. Declared fourth dividend of 5.0 sen per share. With top line returned to growth, FY18 core net profit was stronger thanks to effective cost discipline. Postpaid outperformed on the back of pre-to-post migration, while prepaid was lacklustre in a price focused market environment. We welcome FY19 guidance which indicates continuous operational excellence. We reiterate BUY with unchanged TP of RM5.10. Support on the downside should be driven by decent dividend yield of 4.4%.

Within expectations. FY18 revenue of RM6.5bn translated into a core net profit of RM1.5bn (pre-MFRS 15), accounting for 104% and 96% of HLIB and consensus full year forecasts, respectively.

Dividend. Declared fourth interim tax exempt (single-tier) dividend of 4.8 (4Q17: 4.6) sen per share, representing 98% payout based on post-MFRS 15 EPS. This will go ex on 27 Feb. FY18 dividend amounted to 19.6 (FY17: 18.8) sen per share, in line.

QoQ. Top line gained by 5% mainly attributable to stronger postpaid (+3%) and handset (+46%) revenues, more than sufficient to offset prepaid’s decline (-2%). As a result, this has flowed through and yielded 5% increase in bottom line.

YoY. Revenue gained 2% thanks to solid postpaid growth and stronger prepaid data monetization, more than sufficient to offset the contractions of voice and messaging revenues. Subsequently, core net profit expanded by 5% thanks to superior cost savings, especially in sales and marketing, traffic charges and O&M.

YTD. Turnover rose 3% for the same reasons mentioned above, while core net profit inched up by 4% supported by improved cost structure.

Postpaid. Sub base continued to climb in 4Q18, topping 2.8m after adding 75k QoQ while ARPU trended higher at RM77 (+RM1 QoQ). Postpaid revenue reached another record high at RM667m, up 4% QoQ and 15% YoY. It accounted for 45% of total service revenue in 4Q18.

Prepaid. Blaming on data price competition and abundance data offers, sub base shrunk by 218k subs QoQ, down to a total of 8.6m. ARPU contracted by RM1 QoQ to RM30 amid data pricing aggression. Prepaid internet revenue continued to experience encouraging demand which increased 3% YoY to RM409m accounting for 50% of prepaid revenue.

Guidance. In terms of post MFRS 15 and 9: 1. Service revenue to around FY18 level of RM5.8bn; 2. EBITDA to grow low single digit; and 3. Capex to service revenue ratio of 11%-12%.

Forecast. Maintain as Results Are in Line.

Reiterate BUY based on unchanged DCF-derived TP of RM5.10 based on WACC of 5.8% and TG of 0.5%. Still our favourite due to: (1) MSAP beneficiary; (2) improved efficiency with access to low frequency band; (3) managed services; (4) strong balance sheet to support spectrum fee; and (5) prudent management.

Source: Hong Leong Investment Bank Research - 25 Jan 2019