• Digi’s 1Q21 net profit fell by 6% qoq to RM265m on higher operating costs and the recognition of RM22.5m fair-value loss on interest-rate swaps. The results were within market and our expectations
• Digi’s total subs fell by 1.8% qoq due to lower inbound of migrant workers. This was cushioned by higher number of Malaysian active data subs, which also helped lift its 1Q21 blended ARPU by RM1 to RM43
• Maintain BUY. We are neutral on the results but positive on the proposed Celcom-Digi merger. We expect Digi’s shareholders to benefit from its premium valuation (vis-à-vis Celcom) and merger synergies

1Q21 Net Profit Fell by 6% Qoq to RM265m, Within Expectations

Digi reported an uninspiring set of results. While the group was able to maintain its 1Q21 service revenue of RM1.34bn (-1.0% qoq due to lower number of days), its net profit fell by 5.5% qoq to RM264.8m due to higher operating costs and recognition of RM22.5m fair-value loss on interest-rate swaps. Tracking the weaker earnings, management declared a lower DPS of 3.4 sen (4Q20: 3.6 sen). Nonetheless, the results were within market and our expectations – Digi’s 1Q21 core net profit accounted for 23% of the street and our full-year earnings forecasts.

Higher ARPU Has Partly Mitigated the Decline in Number of Subs

Digi’s total subscribers fell by 1.8% qoq to 10.25m due to a 237k decline in prepaid subs, partly cushioned by a 46k increase in postpaid subs. Management shared that the continuation of closed borders and lower inbound of migrant workers had affected the number of prepaid subs. In the meantime, Digi has targeted and continues to grow its Malaysian active data subscribers, which led to a RM1 qoq increase in 1Q21 blended ARPU to RM43. Looking ahead, management believes that the number of migrant subs should stabilize at the current level.

Maintain BUY – We Are Positive on the Proposed Merger

During the analyst briefing, management discussed the results and operational performance, but did not take any questions on the possible Celcom-Digi merger. Overall, we are positive on the proposed merger. We expect the merger to generate business synergies and to help ease the intense competition in the telco market. Digi’s shareholders should benefit from its valuation premium (vis-à-vis Celcom), merger synergies and higher share liquidity while continuing to enjoy consistent dividends. Maintain BUY with an unchanged PT of RM4.60.

Source: Affin Hwang Research - 26 Apr 2021