Result

• Digi registered a net profit of RM362m in 3Q19. The reported net profit declined 12.6% QoQ and 7.9% YoY due to RM202m depreciation cost, RM26m finance cost and higher tax rate. The 3Q19 normalised net profit grew 2.2% QoQ and declined 5.8% YoY.

• Steady revenue. Quarterly revenue was flat at RM1.56b after adding 1% QoQ and shedding 2% YoY. Revenue growth was supported by higher postpaid revenue of RM666m (+3% QoQ, +10% YoY) and flat device revenue of RM149m which offset lower prepaid revenue of RM740m (-1% QoQ and -11% YoY).

• Margins declined. 3Q19 EBITDA margin was lower at 46% vs 49% in 2Q19 due to non-recurring cost effects and amortisation. Similarly, PAT margin dropped to 23% from 27% in 2Q19 due the mentioned exceptional items. Excluding the exceptionals, Digi would have posted satisfactory QoQ earnings.

• Lower 9M19 earnings. Year to date, the Group revenue deteriorate 4.8% YoY to RM4.6b due to lower prepaid revenue and device revenue. As such, a lower PAT of RM1.1b was recorded (-5.8% yoy).

• Meeting expectations. Overall, 9M19 net profit accounts for 72%/xx% of our/consensus full year estimates.

• Solid growth from the postpaid segment. Postpaid subscribers strengthened to 3.0m, climbing 2.3% qoq and 9.6% yoy, fuelled by the PhoneFreedom 365 program along with customer migration from prepaid to pospaid, whilst postpaid ARPU inched up to RM71 from RM70 in the previous quarter.

• Continuous decline in prepaid segment. Prepaid subscribers declined to 8.3m (-1.2% qoq and -8.1% YoY), due to churn and migration to postpaid. Flat prepaid ARPU of RM29 was recorded due to intense data price competition and abundance of data offers in the market.

• Higher operating cashflow. Operating cashflow increased by RM115m or +23% qoq to RM606m as a result of lower capex. Net debt to EBITDA stands at 0.8 times.

• Dividend declared. The Group declared a 3nd interim dividend of 4.5sen/share, representing 73% of our full year FY19F dividend forecast of 19 sen. We expect a similar dividend payment for the coming quarters, translating into dividend yield of around 4.2%.

Source: JF Apex Securities Research - 21 Oct 2019