Digi’s 2Q20 net profit fell by 13% qoq to RM288m due to lower mobile service revenue (-5%) and the recognition of RM16m of asset retirement obligations (ARO) that were partly mitigated by lower operating expenses. In tandem, management declared a lower dividend of 3.7 sen (1Q20: 4.2 sen). Cumulatively, Digi’s 6M20 net profit fell by 16% yoy to RM620m due to higher costs against a low base in 6M19. Overall, the earnings are within our forecast but below the market’s expectations. Looking ahead, management expects a low-single-digit decline in 2020 service revenue and a mid-singledigit decline in EBITDA. We maintain our earnings forecasts, HOLD rating and 12-month TP of RM4.60.

2Q20 Net Profit Fell by 13% Qoq on Lower Service Revenue, ARO

Digi reported a lower 2Q20 net profit of RM288m (-13% qoq / -27% yoy) due to: (i) lower mobile service revenue (-5% qoq / -6% yoy); (ii) the recognition of a non-recurring RM19m of ARO; and (iii) absence of an interest swap gain (RM37m in 1Q20); these were partly mitigated by lower operating expenses (ie. staff costs, sales and marketing costs). At the EBITDA level, Digi clocked in a higher 2Q20 EBITDA of RM770m (+2% qoq) due to lower operating expenses and a 34% qoq decline in the cost of materials (ie. device costs). Tracking the lower earnings, management declared a lower 2Q20 dividend of 3.7 sen (1Q20: 4.2 sen).

6M20 net profit fell by 16% yoy, below consensus but within our forecasts

Digi’s 6M20 net profit fell by 16 yoy to RM620m due to lower service revenue (-3.3% yoy) and higher costs (against a low base in 6M19 when Digi booked several non-recurring cost benefits). Overall, the 6M20 earnings were within our expectation but below consensus, accounting for 47% and 44% of the respective full-year earnings forecasts.

Lower Subs in 2Q20 While Blended ARPU Was Flat (qoq)

Digi had 10.62m mobile subscribers in 2Q20, a 386k decline from 1Q20. Notably, we observed a decline in both the prepaid (-356k to 7.59m) and postpaid subscribers (-29k to 3.03m), due to a reduction of non-active users, continued pre-to-post migrations, sim consolidation and lower acquisitions due to the closure of physical stores. Nonetheless, Digi’s blended ARPU was unchanged qoq at RM40. The monthly usage per user grew from 18.0 GB/month in 2Q20, from 14.5 GB/month in 1Q20.

Source: Affin Hwang Research - 15 Jul 2020