Result

• Digi registered a net profit of RM288m in 2Q20. The reported net profit declined 13% QoQ and 27% YoY mainly due to lower revenue as a result of MCO and a one off spike in net finance cost to RM65m vs RM14m in 1Q20.

• Lower revenue. Quarterly revenue was lower at RM1.45b after dropping 7% QoQ and 6% YoY due to closure of physical stores which dampened subscriber acquisition. All segments saw revenue decline: a) postpaid RM639m (-3% QoQ, -1% YoY), prepaid RM679m (-7% QoQ and -10% YoY) and device revenue RM135m (-22% QoQ and -8% YoY).

• Steady EBITDA margin - Despite lower revenue, Digi posted a higher EBITDA of RM770m (+2% QoQ) due to its ongoing cost cutting efforts which saw COGS drop 20% QoQ to RM318m while Opex declined 10% QoQ to RM369m. This translates into an EBITDA margin of 53% vs 49% in 1Q20.

• Within expectation. 2Q20 net profit and revenue are within our expectation after accounting for 45% and 50% of our full year estimates respectively.

Comment

• Postpaid revenue affected by travel restrictions.Postpaid subscribers declined slightly to 3.0m, -1% QoQ but +3.6% YoY. Postpaid ARPU edged lower to RM68 from RM69 in 1Q20 due to lower roaming and interconnect.
• Prepaid segment impacted by migrants. Prepaid subscribers decreased to 7.6m (-4.5% QoQ and -10% YoY), as subscription was affected by the migrant segment. Prepaid ARPU was slightly lower at RM29 vs RM30 in 1Q20.
• Lower operating cashflow. Operating cashflow was lower at RM545m vs RM617m due to higher capex while net debt to EBITDA was unchanged at 1.5x as cash reserves rose to RM519m vs RM307m in 1Q20 in line with higher finance lease.

• Dividend declared. The Group declared its 2nd interim dividend of 3.7 sen/share. We expect full year dividend of 18 sen, which translates into a yield of 4%.

• Outlook for 2020. Due to the lingering uncertainty on COVID-19, the management has revised its guidance to: a) low single digit decline in service revenue, b) medium single digit decline in EBITDA, and c) capex to remain similar to 2019 at RM753m

Source: JF Apex Securities Research - 15 Jul 2020