Period

2Q15/1H15

1H15 core NP of RM944m (-4.1% YoY) came in within expectations, accounting for 46.9% of our full-year estimate and 45.5% of the consensus. Overall, the 1H15 performance (on a YoY basis) was mainly driven by: (i) higher mix of affordable smartphone bundles, and (ii) stronger demand on mobile internet but offset by the impact from competition intensity, weaker currency, and interim weaker spending post GST among the prepaid subscribers.

Dividends

It declared a second interim tax exempt (single-tier) dividend of 5.9 sen (ex-date: 5 August), which translates into a 98.8% payout ratio, bringing the YTD total dividend to 12.0 sen (1H14: 12.6 sen). For the full financial year, we expect DIGI to declare 25.1 sen.

Key Result Highlights

YoY, 1H15 revenue climbed 1.5% to RM3.5b, fuelled by stronger service revenue (+1.8% to RM3.2b) but partially offset by lower device & other revenue (-1.5% to RM337m). Its EBITDA margin, however, was lower by 90bps to 44.5%, no thanks to higher device sales in 1Q15 (which consist of lower margin) and weaker MYR. Group NP, meanwhile, declined by 4.1% to RM944m as a result of the lower EBITDA margin, higher depreciation & amortisation charges as well as higher tax expenses.

QoQ, 2Q15 revenue was lower by 3.8% due mainly to lower device & other revenue while its service revenue remains relatively stable at RM1.59b (+0.1%). Its COGS was trimmed by 12.7% in line with lower device revenue while OPEX to service revenue ratio remained fairly resilient at 29.1% amid competition intensity and rapid expansion of data network. Service revenue EBITDA margin remained strong at c.50% while absolute EBITDA improved by 1.7% to RM788m with margin enhanced to 45.7% (vs. 43.3% in 1Q15).

Digi’s total subscriber base added 124k net adds in 2Q15 (to 11.8m), supported by both prepaid (+111k) and postpaid (+13k) subscribers, mainly underpinned by the  stronger network infrastructure, wider coverage, as well as easy access to a wide range of affordable smartphones bundles. Its blended ARPU remained steady at RM45.

Data revenue accounted for 42.3% of 2Q15 total service revenue, thanks to the higher smartphone (57.1%) and Internet (57.9%) penetration rates.

Outlook

DIGI is maintaining its FY15 earnings guidance, where the group is targeting to deliver a low-mid single digit service revenue growth, together with a sustainable EBITDA margin which is similar to FY14 level (~45%). 

Change to Forecasts

Trimmed our FY15E/FY16E NPs by 1.7%/1.1%, after fine-tuning and lowering our revenue assumption by 1.0%/0.8%. Meanwhile, we also raised our depreciation and interest expense forecasts to reflect the latest runrate.

Rating

Maintained OUTPERFORM (due to the potential total upside of 24.4% (20% capital upside & 4.5% yield)).