Results Highlight

• 4Q17 net income declined 4% YoY and 6.5% QoQ to RM360m. Meanwhile, quarterly revenue rose 5.8% YoY and 4.8% QoQ to RM1.65bn.

• Slightly lower margin - 4Q17 EBITDA margin was steady at 44% compared to 46% in 3Q17 3Q16 due to higher device cost and decrease in domestic and international voice traffic volumes.

• Profit below forecast – FY17 revenue of RM6.34b came within forecast after achieving 98% of our full year forecast but twelve months’ net profit of RM1.48b was below estimate after making up 88% of FY17 forecast.

• Postpaid growth continued – Postpaid segment continued its momentum after revenue for the quarter gained 13.5% YoY and 4% QoQ to RM580m. Prepaid revenue showed signs of recovery after declining 10.6% YoY but increased marginally by 1.5% QoQ to RM933m.

• Prepaid churn – In 4Q17, total subscribers decreased 4.5% YoY and 0.9% QoQ to 11.75m, after prepaid subscribers dropped 9% YoY and 2% QoQ to 9.27m, while postpaid subscribers increased 18% YoY and 3.5% QoQ to 2.48m.

• Improved ARPU – DiGi’s blended ARPU for 4Q17 was higher at RM43 due to higher prepaid ARPU at RM34 (vs RM32 in 3Q17), while postpaid ARPU inched higher to RM78 (vs RM77 in 3Q17).

• Steady operating cash flow – 4Q17 operating cash flow was slightly lower at RM561m (vs RM575m in 3Q17) as capex climbed to RM170m (vs RM152m in 3Q17). Cash reserves declined to RM575m (vs RM661m in 3Q17) while net debt/EBITDA was unchanged at 0.7x following the issue of Islamic debts to pare down its interest-bearing debts and spectrum payments.

• Interim dividend – DiGi declared its final interim dividend of 4.6 sen/share, taking total dividend declared for the year to 18.8 sen, translating into a yield of 4%.

Earnings Outlook/Revision

• Maintaining earnings forecast – We are keeping our revenue and EPS forecasts for FY18 and FY19 in anticipation of higher contribution from postpaid after launching the 900MHz spectrum and recovery of the prepaid segment.

• Maintain HOLD – Our recommendation is kept at HOLD with an unchanged target price of RM4.96 based on DDM valuation.

Source: JF Apex Securities Research - 24 Jan 2018